Wage Theft? What Wage Theft?!

The Senate

Education and Employment References Committee

Wage theft? What wage theft?!

The exploitation of general and specialist cleaners working in retail chains for contracting or subcontracting cleaning companies

November 2018

ISBN 978-1-76010-807-6 (Printed Version)

ISBN 978-1-76010-807-6 (HTML Version)

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License.

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Members

Chair Senator Gavin Marshall ALP, VIC

Deputy Chair Senator Slade Brockman LP, WA (from 10 September 2018, Deputy Chair from 11 September 2018)

Members Senator Catryna Bilyk ALP, TAS Senator Mehreen Faruqi AG, NSW (from 21 August 2018) Senator Deborah O'Neill ALP, NSW Senator James Paterson LP, VIC

Substitute Members Senator Andrew Bartlett AG, QLD (for Senator Hanson-Young on 19 July 2018) Senator the Hon Doug Cameron ALP, NSW (for Senator Marshall on 19 July 2018 and 25 July 2018 and for Senator Bilyk on 18 October 2018) Senator Jane Hume LP, VIC (for Senator Gichuhi on 19 July 2018) Senator Sue Lines ALP, WA (for Senator O'Neill on 19 July 2018) Senator Nick McKim AG, TAS (for Senator Hanson-Young on 25 July 2018) Senator Jim Molan AO, DSC LP, NSW (for Senator Paterson from 5 November 2018)

Participating Members Senator the Hon Doug Cameron ALP, NSW Senator the Hon Eric Abetz LP, TAS

Former Members Senator Lucy Gichuhi LP, SA (Deputy Chair until 10 September 2018) Senator Sarah Hanson-Young AG, SA (from 19 June 2018 to 21 August 2018)

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Secretariat Mr Stephen Palethorpe, Committee Secretary Ms Natasha Rusjakovski, Principal Research Officer Ms Kimberley Balaga, Senior Research Officer Ms Kate Campbell, Senior Research Officer Ms Ariane Lloyd-Pitty, Senior Research Officer Mr Matthew Hughes, Research Officer Ms Jade Monaghan, Administrative Officer

Committee web page: www.aph.gov.au/senate_eec PO Box 6100 E-mail: [email protected] Parliament House Ph: 02 6277 3521 Canberra ACT 2600 Fax: 02 6277 5706 iv

Table of contents

Members ...... iii List of Recommendations ...... vii

Chapter 1—Introduction ...... 1 Conduct of the inquiry ...... 1 Structure of the report ...... 2 Acknowledgment ...... 2 Notes on references ...... 2

Chapter 2—Background ...... 3 A high risk industry for the exploitation of workers ...... 3

Chapter 3—The exploitation of cleaners in Woolworths' supply chain ...... 11 Non-compliance in supermarkets in Tasmania ...... 11 Effectiveness of Proactive Compliance Deeds ...... 16 Limitations of the Cleaning Accountability Framework ...... 27

Chapter 4—Parallels in the public sector ...... 31 Links with non-compliant companies ...... 38

Chapter 5—Growing fragmentation of employment relations ...... 43 Effectiveness of the accessorial liability provisions of the Fair Work Act ...... 46 Collective bargaining ...... 52

Chapter 6—Additional measures to address non-compliant behaviour ...... 55 Pyramid subcontracting ...... 55 Misuse of labour hire arrangements ...... 58 Illegal phoenixing ...... 60

Chapter 7—Additional measures to assist vulnerable workers ...... 65 Outreach to culturally and linguistically diverse communities ...... 65 Protections for visa holders ...... 69 Findings from the Wage Theft in Silence report ...... 72 Role of unions in protecting vulnerable workers ...... 76

Coalition Senators' Dissenting Report...... 81

Appendix 1—Submissions and additional information ...... 85

Appendix 2—Public hearings and witnesses ...... 89

Appendix 3—Speak Up flyer provided by Woolworths Group ...... 93

Appendix 4—Proposed amendments to the Fair Work Act 2009 by WEstjustice Community Legal Centre ...... 97

List of Recommendations

Recommendation 1 2.30 The committee recommends the Government take immediate steps to protect vulnerable workers subject to wage theft and exploitation by companies who continue to operate with impunity.

Recommendation 2 2.31 The committee recommends that upon receipt of the final report of the Migrant Workers' Taskforce, the Government:  immediately publicly release the report along with the Taskforce's Progress Report; and  within a month, publicly release its response. 2.32 The committee further recommends that the Government take into account the evidence and recommendations of this committee's report in preparing its response to the Migrant Workers' Taskforce report.

Recommendation 3 3.73 The committee recommends that the Fair Work Ombudsman, when negotiating future proactive compliance deeds, cease determining arbitrary cut off dates for underpayment recovery schemes, but rather set appropriate timeframes so that all instances of non-compliance can be captured and rectified.

Recommendation 4 3.74 The committee recommends that the Fair Work Ombudsman provide Woolworths with the contact details of the Tasmanian cleaners impacted by underpayments so that Woolworths can contact these individuals directly to begin the repayment process.

Recommendation 5 3.75 The committee recommends that Woolworths immediately reassess the methods and resources it is using to communicate with cleaners affected by non-compliant behaviour to make it clearer that recourse is available to them and take steps to properly determine the scale and impact of wage theft and non-compliance in Woolworths supermarkets across the nation.

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Recommendation 7 4.41 The committee recommends that the Australian National Audit Office conduct a performance audit on the extent to which Commonwealth entities are using public resources in an ethical manner in compliance with the Commonwealth Procurement Rules.

Recommendation 8 4.42 The committee recommends that the Department of Finance immediately renegotiate the contract with Broadspectrum in order to properly account for the previous working conditions of the cleaners.

Recommendation 9 4.57 The committee recommends the Department of Finance broaden the Commonwealth Procurement Rules to preclude a tenderer from entering a contract with any corporation or an associated entity that has been penalised on more than one occasion for being non-compliant with any employee entitlement laws.

Recommendation 10 5.43 The committee recommends that for consistency the Fair Work Act 2009 be amended to extend the protections for vulnerable workers from franchise arrangements to other business models such as subcontracting and labour hire arrangements. 5.44 In particular the committee recommends that the Fair Work Act 2009 be amended so that a person (whether an individual or a corporate entity) should be liable for an employer’s contravention of the National Employment Standards, an industrial instrument, the rules concerning the payment of wages or the keeping of records, or the prohibitions on sham contracting, where the person:  has a significant degree of influence or control over the employer’s affairs, or over the wages or employment conditions of the relevant employee(s);  knew or could reasonably be expected to have known that the contravention (or a contravention of the same or a similar character) would occur; and

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 cannot show that they have taken reasonable steps to prevent a contravention of the same or a similar character. 5.45 The committee recommends that the amendment specify that whether a person has significant influence or control over wages or employment conditions should be determined by reference to the substance and practical operation of arrangements for the performance of the relevant work. 5.46 The committee further recommends that the amendment specify that person should be deemed to have significant influence or control if it sets or accepts a price for goods or services, or for the use of property, at a level that practically constrains the capacity of the relevant employer to comply with its obligations. 5.47 The committee also recommends that the proposals put forward by WEstjustice be adopted in so far as they are consistent with the above recommendations.

Recommendation 11 5.57 The committee recommends that the Government establish a review into the effectiveness of collective bargaining under the current legislative framework to address stagnating wages and bargaining power imbalances.

Recommendation 12 6.18 The committee recommends that the Government consider an appropriate legislative framework to address the problems identified with pyramid subcontracting.

Recommendation 13 6.30 The committee recommends that the Government, in consultation with all states and territories, establish a national labour hire licensing scheme.

Recommendation 14 6.44 The committee recommends that the Government work to implement its announced reforms to combat illegal phoenixing, such as the Director Identification Number scheme, as swiftly as possible.

6.46 The committee also recommends that any legislative amendments to promote improved information sharing be matched with appropriate resourcing and engagement with industry as well as procedural safeguards.

Recommendation 16 7.17 The committee recommends that the Government adequately fund the Fair Work Ombudsman in its efforts to provide tailored assistance to vulnerable workers, particularly those from culturally and linguistically diverse backgrounds.

Recommendation 17 7.18 The committee recommends that the Government work with industry stakeholders and unions to develop and fund targeted education programs aimed at assisting vulnerable workers from migrant and culturally and linguistically diverse backgrounds to navigate the Australian workplace relations system.

Recommendation 18 7.19 The committee recommends that the Government fund not-for-profit community legal centres to enable such organisations to expand their work in community legal education and provide tailored assistance to vulnerable workers experiencing exploitation.

Recommendation 19 7.32 The committee recommends that the Fair Work Ombudsman and the Department of Home Affairs consider revising their current protocol regarding the cancellation of temporary visas for individuals who come forward to report exploitation in order to provide greater certainty to migrant workers that they will not be punished for reporting the non-compliant behaviour of their employer.

Recommendation 21 7.47 The committee recommends that the Government provide additional funding to the Fair Work Ombudsman in order to provide more direct assistance to individual vulnerable workers to recover unpaid wages. x

Recommendation 22 7.61 The committee notes that workers who access union support have greater success in ensuring their wages and entitlements are compliant with the law. The committee recommends that the Government ensure that workers have appropriate access to union advice and support.

Chapter 1 Introduction

1.1 On 19 June 2018, the Senate referred the following matter to the Education and Employment References Committee (the committee) for inquiry and report by 17 September: The exploitation of general and specialist cleaners working in retail chains for contracting or subcontracting cleaning companies, with particular reference to: (a) frameworks at both Commonwealth and industry level to protect workers from harm, including exploitation, wage theft, underpayment, wage stagnation and workplace injury; (b) measures designed to ensure workers have adequate representation and knowledge of their rights; (c) compliance with relevant workplace and taxation laws, including the effectiveness and adequacy of agencies such as the Fair Work Ombudsman and the Australian Taxation Office; (d) practices including ‘phoenixing’ and pyramid subcontracting; and (e) any related matters.1 1.2 On 25 June 2018, the Senate granted an extension of time to report until 15 October 2018.2 On 13 September 2018, the Senate granted a further extension of time to report until 13 November 2018.3

Conduct of the inquiry 1.3 Notice of the inquiry was posted on the committee's website. The committee also wrote to key stakeholders to invite submissions. 1.4 The committee received 22 submissions, as detailed at Appendix 1. 1.5 The committee held 5 public hearings:  19 July 2018 in Caboolture;  25 July 2018 in Devonport;  4 September 2018 in Melbourne;  14 September 2018 in Canberra; and  18 October 2018 in Canberra. 1.6 A list of witnesses that appeared at these hearings is available at Appendix 2.

1 Journals of the Senate, No. 99, 19 June 2018, p. 3187.

2 Journals of the Senate, No. 102, 25 June 2018, p. 3271.

3 Journals of the Senate, No. 117, 13 September 2018, p. 3738.

Structure of the report 1.7 During the course of the inquiry the committee identified a number of key issues relating to the exploitation of workers in the retail cleaning industry. It also examined similar matters relating to the Commonwealth procurement of cleaning services. 1.8 Chapter 2 provides background information on the cleaning industry and identifies the characteristics that make it 'high risk' for worker exploitation. 1.9 Chapter 3 summarises the findings of the Fair Work Ombudsman's investigation into the procurement of retail cleaners in Tasmania, with a focus on Woolworths' poor management of its cleaning supply chain. It also examines the effectiveness of proactive compliance deeds as a compliance tool used by the Fair Work Ombudsman, and the limitations of the Cleaning Accountability Framework. 1.10 Chapter 4 turns to a case study in the public sector involving the Commonwealth Department of Finance and its cleaning contracting arrangements under the Property Services Coordinated Procurement framework. 1.11 Chapter 5 examines issues surrounding the fragmentation of employment chains and the effectiveness of Section 550 of the Fair Work Act 2009. 1.12 Chapter 6 contains a discussion on the additional measures needed to address non-compliant behaviour from employers, including the inappropriate use of pyramid subcontracting, the misuse of labour hire arrangements, and illegal phoenixing. 1.13 Chapter 7 sets out the need for additional measures to assist vulnerable workers.

Acknowledgment 1.14 The committee thanks those individuals and organisations who contributed to this inquiry by preparing written submissions and giving evidence at public hearings.

Notes on references 1.15 References in this report to the Hansard for the public hearings are to the proof Hansard. Page numbers may vary between the proof and official Hansard transcripts.

Chapter 2 Background

2.1 This chapter provides background information on the characteristics of the cleaning industry that make it 'high risk' for worker exploitation.

A high risk industry for the exploitation of workers 2.2 The committee heard that the cleaning industry was particularly prone to the exploitation of workers, due in large part to two characteristics:  the demographic vulnerability of the workers commonly employed in the cleaning industry; and  the prevalence of complex employment chains and contracting arrangements. 2.3 In particular, the committee heard that the use of such fractured employment relationships was often designed to diminish or exclude those who use contracting arrangements from responsibility for worker exploitation, sham employment arrangements and wage theft.

Vulnerable workers 2.4 The Federation of Ethnic Communities' Councils of Australia (FECCA) stated that cleaning work is often 'low paid, insecure, isolating, dangerous and difficult' and noted that the exploitation of migrants and Australians from culturally and linguistically diverse (CALD) backgrounds in the cleaning industry had been highlighted many times by community organisations, parliamentary inquiries, unions and the Fair Work Ombudsman (FWO).1 2.5 The FWO submitted Australian Bureau of Statistics data that revealed particular characteristics of the cleaning workforce. For example:  50 per cent of workers were born overseas (compared to 30 per cent of all employed persons in Australia);  40 per cent spoke a language other than English at home (compared to 21 per cent of all employed persons in Australia);  of those who spoke a language other than English at home, 19 per cent either did not speak English at all, or did not speak English very well (compared to 8 per cent of all employed persons in Australia);  28 per cent did not have Australian citizenship (compared to 12 per cent of all employed persons in Australia);  12 per cent were current students; and

1 Federation of Ethnic Communities' Councils of Australia (FECCA), Submission 10, p. 1.

 68 per cent were employees, as opposed to contractors or owner/managers (compared to 85 per cent of all employed persons in Australia).2 2.6 The FWO acknowledged that these characteristics may increase the vulnerability of workers in the cleaning industry to exploitation.3 2.7 The Law Council of Australia (Law Council) noted that in terms of job entry requirements, the cleaning sector has minimal language or skill set barriers. It commented that this made the sector attractive to migrants, international students, and young people.4 This position accorded with the data put forward by the FWO. 2.8 Maurice Blackburn Lawyers (Maurice Blackburn) made a similar point, stating that vulnerable demographics often employed in the cleaning sector included:  individuals from CALD backgrounds;  individuals returning to the workforce following family responsibilities;  individuals who had left school early; and  students.5

Employment chains conducive to exploitation 2.9 WEstjustice Community Legal Centre (WEstjustice) which operates in the western suburbs of Melbourne, observed that its clients from the cleaning sector frequently encountered exploitative work arrangements: Exploration is rife. Our cleaning clients are frequently engaged in sham arrangements and routinely underpaid. One fifth have suffered a workplace injury and one in six workers complained of discrimination or bullying. Clients were paid as little as $13 an hour, and some received no income at all. Some clients had been forced to pay for 'training' and then left out of pocket and without a job.6 2.10 JobWatch, an employment rights community legal centre which operates in Victoria, advised that it was aware of 'widespread problems' for workers engaged by entities (such as cleaning companies, labour hire companies and sole traders) that contract with client entities to provide cleaning services. The problems encountered by these workers included:  sham contracting;  underpayment;

2 Fair Work Ombudsman, Submission 14, pp. 1–2. The FWO noted that data specific to cleaners working in retail chains was not available.

3 Fair Work Ombudsman, Submission 14, p. 2.

4 Law Council of Australia, Submission 16, p. 5.

5 Maurice Blackburn Lawyers, Submission 4, p. 3.

6 WEstjustice Community Legal Centre, Submission 20, p. 6.

 loss of entitlements due to a change in employer, while doing the same work for the same client;  employer insolvency and phoenix activity;  work health and safety breaches; and  exploitation of temporary visa holders.7 2.11 The Employment Law Centre of Western Australia also noted that it dealt with a number of clients from the cleaning industry who had experienced similar problems.8 2.12 United Voice, one of the key unions which represents workers in the cleaning industry, identified that due to the nature of contract cleaners as a 'highly dispersed' and 'hidden' workforce, the full extent of their exploitation was difficult to determine. It reported that in its experience of the retail cleaning sector, contraventions of the Cleaning Services Award 2010 are 'extremely common' and 'exponentially higher' once a second-tier or more of sub-contracting is introduced.9 2.13 United Voice explained the typical areas of award non-compliance: Most cleaners working in supply chains are not receiving payslips, are paid a flat cash rate for all hours worked (and so are not paid minimum wages, part-time allowances, night shift, weekend or public holiday penalty rates), do not receive overtime, do not receive superannuation, and are often unable to provide a clear indication of the business which has employed them.10 2.14 United Voice posited that the primary reason for the pervasive non-compliance with legal obligations in the retail cleaning industry is the 'cutthroat nature of the competitive contracting system'.11 2.15 The Cleaning Accountability Framework contended that the cleaning industry is 'more susceptible' to exploitative practices given that in addition to a highly vulnerable migrant workforce, it is labour intensive, subject to outsourcing and subcontracting, and lacking in consistency and transparency in pricing.12 2.16 The Centre for Business and Social Innovation at the University of Technology Sydney pointed out that the cleaning sector is characterised by 'aggressive price competition'. It noted that as the work has minimal skill requirements

7 JobWatch, Submission 12, p. 5.

8 Employment Law Centre of Western Australia, Submission 13, pp. 4–5.

9 United Voice, Submission 9, p. 6.

10 United Voice, Submission 9, p. 6.

11 United Voice, Submission 9, p. 6.

12 Cleaning Accountability Framework, Submission 15, p. 2.

and low barriers to new business entrants, this created a downward pressure on wages and conditions for workers.13 2.17 Mr Josh Bornstein, Principal Lawyer for Maurice Blackburn, drew the committee's attention to the rise of employment arrangements involving some kind of intermediary between the entity receiving the services and the worker: If there is a single most important change in the labour market to highlight today, it is that large companies have got out of the business of directly employing staff. Since about the 1970s, the trend has been that large companies have, instead of employing people directly, including cleaners, decided to cease that employment and instead source those workers through different arrangements, where there is an intermediary—third party, labour hire company or supply chain—involved.14 2.18 The Maurice Blackburn written submission elaborated on this concept and set out why these arrangements are, by their nature, prone to the exploitation of workers: Large retailers and corporations are able to outsource their cleaning requirements through a competitive tender process. Through this, they are able to dictate pay rates – by selecting the successful tenderer on the basis of cost – without having the direct responsibility to the cleaners for their employment terms and conditions. The emergence of this middle party – the employer of the cleaners – has led to a disconnect between the development of purchasing policies by retailers/corporations, and the impacts those policies have on the ones who actually provide the service. These middle parties – the business operators who win the tender to provide services must figure out how to provide the services, and derive their own profit, in a highly competitive marketplace where the success of the tender is determined primarily by the lowest bid. One obvious way they can look to cut costs is in employees’ pay rates.15 2.19 The Australian Council of Trade Unions (ACTU) also raised concerns regarding the trend to outsource cleaning services: We have long held concerns about the parlous state of worker’s rights in the cleaning industry – an industry in which wage theft, wage stagnation, insecurity and poor working conditions are entrenched features. For many years the twin influences of outsourcing and the industrial relations systems’ focus on technical employers rather than those who actually set wages and conditions have created powerful rationales within the cleaning industry for worker exploitation. Most workers in the industry are employed by an entity that has been forced to bid for work doled out by large corporations who have huge incentives to keep prices low. Many are

13 Centre for Business and Social Innovation, University of Technology Sydney, Submission 3, p. 3.

14 Mr Josh Bornstein, Principal Lawyer, Maurice Blackburn Lawyers, Proof Committee Hansard, 4 September 2018, p. 8.

15 Maurice Blackburn Lawyers, Submission 4, p. 2.

attempting, within the current [industrial relations] framework, to bargain with an entity that, despite being their employer, has absolutely no control over the amount of money available for wages or the conditions they work under.16 2.20 United Voice strongly echoed these points.17 United Voice also observed that the money allocated to cleaning contracts is generally fixed, with the going tender price typically remaining static and unresponsive to rises in labour costs, public liability insurance expenses and the consumer price index: Any cleaning contractor who wishes to survive in such an environment must conform with the de facto norms of the industry, which involve ruthless cost-cutting, promises to perform the work at or below cost, and doing and saying ‘whatever it takes’ to win contracts in the short term. Despite cleaning companies’ claims to superior levels of ‘innovation’ and ‘efficiency’, it remains the case that many contracts are for sums that are so low that they cannot possibly be adequate to enable the contractor to deliver quality cleaning of the areas involved without either paying unlawfully low wages, intensifying work and/or cutting costs on equipment or chemicals. Contractors know, however, that bidding for and accepting such contracts is the price of doing business. Under such industry conditions – where adhering to the law is likely to send you out of business, and the chance of being punished for non-compliance with labour laws is low – worker exploitation becomes a rational business decision.18 2.21 The ACTU also emphasised this reality, stating that the current state of the cleaning industry created an environment where 'obeying the law is a recipe for financial ruin', and subsequently 'worker exploitation has become a rational business model'.19 2.22 The ACTU further argued that the current framework allowed large corporations to retain all the power but none of the responsibility: Large retailers, who essentially control the wages and conditions of cleaners through their contracting, have been able to establish the legal fiction that they are detached from the workplace entitlements of workers in the industry – leaving them with all of the power and none of the responsibility.20 2.23 Professor Allan Fels who chairs the Commonwealth Government's Migrant Workers' Taskforce, observed that the exploitation of workers not only causes

16 Australian Council of Trade Unions, Submission 11, p. 2.

17 United Voice, Submission 9, p. 6.

18 United Voice, Submission 9, p. 7.

19 Australian Council of Trade Unions, Submission 11, p. 3.

20 Australian Council of Trade Unions, Submission 11, p. 2.

harm to the individuals involved, but also to the Australian business community: The exploitation of these vulnerable workers can cause personal detriment to the individual, to their family members and to their dependants. Obviously, this also has some negative effects on Australian business. It makes it hard to compete if the business next door is cutting prices because they're paying wages below the minimum.21 2.24 Chapter 5 of this report examines in more detail the negative impact of fragmented employment chains on the treatment of workers.

Committee view 2.25 The committee is deeply concerned by the trend in contracting out cleaning services through convoluted supply chains with murky lines of responsibility. 2.26 The committee considers that such contracting and sub-contracting arrangements are being intentionally used by large corporations to dilute the responsibility and accountability for the basic legal entitlements owed to workers at the bottom of the chain. 2.27 The committee is of the opinion that these arrangements create a perverse incentive for entities at the top of the supply chain, often large, profitable, well-known corporations and businesses, to deliberately distance themselves from the legal entitlements of the individuals who are providing labour for them. 2.28 Finally, the committee acknowledges of the work being done by Professor Fels and the Migrant Workers' Taskforce. The committee notes the extension of time granted to the Taskforce and that Professor Fels indicated he anticipates the final report will be submitted to the Government no later than November 2018. In this context the committee notes Professor Fels' public statement from March 2018 that the 'Taskforce will provide a Progress Report to Minister Cash [the former Minster for Employment] shortly. In this report, we will flag some early recommendations in areas canvassed by the Taskforce, and flag the work the Taskforce will focus on over the next 6 months.'22 As far as the committee is aware, the Government has not released or responded to the Progress Report. 2.29 The committee awaits with interest the publication of the Taskforce's final report and urges the Government to release the report immediately and to respond without delay. The committee also encourages the Government to

21 Professor Allan Fels AO, Chair, Migrant Workers' Taskforce, Proof Committee Hansard, 4 September 2018, p. 2.

22 Professor Allan Fels AO, Chair, Migrant Workers' Taskforce, Chair's Public Statement March 2018 meeting, www.jobs.gov.au/chair-s-public-statement-march-2018-meeting (accessed 30 October 2018).

consider the evidence and recommendations of this report in its deliberations on the final Migrant Workers' Taskforce report.

Chapter 3 The exploitation of cleaners in Woolworths' supply chain

Non-compliance in supermarkets in Tasmania 3.1 In February 2018, the Fair Work Ombudsman (FWO) released a report with the findings of its inquiry into the procurement of cleaners in Tasmanian supermarkets (FWO report).1 The report found non-compliance with legal obligations by cleaning contractors at 90 per cent of Woolworths' sites in Tasmania. The FWO report ultimately concluded that Woolworths' approach to procurement and the oversight of its cleaning contracts contributed to this culture of non-compliance.2 3.2 The FWO inquiry formally commenced in November 2014 and occurred in two phases. In the first phase, FWO inspectors visited 15 Woolworths and Coles supermarket sites throughout Tasmania to speak with cleaners and examine records. These sites were chosen based on specific intelligence indicating serious non-compliance. Phase 2 of the inquiry focused on 55 supermarket sites (comprising 43 per cent of Tasmanian supermarket sites), including:  thirty-one Woolworths supermarket sites;  seven Coles supermarket sites; and  seventeen IGA supermarket sites.3 3.3 As Woolworths was the only major supermarket retailer outsourcing its day-to-day cleaning services, the procurement arrangements at Woolworths sites became the chief focus of the inquiry.4 3.4 The FWO inquiry identified particular pressures associated with the supermarket cleaning sector that determined whether a cleaning business retained its contract. For example, the expectation that cleaners will be required to work late evenings and early mornings, and that the cleaning is to

1 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, www.fairwork.gov.au/reports/inquiry-into-the-procurement-of-cleaners-in- tasmanian-supermarkets/download-pdf (accessed 23 October 2018).

2 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 2.

3 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, pp. 11–12.

4 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 12.

be completed in short timeframes at minimal cost. The FWO report detailed other pressures present in the sector: Workers engaged to clean supermarkets are also subject to a high level of scrutiny in relation to the store cleanliness by the supermarket management and the public. A cleaner is required to scrub, mop and polish the floors, as well as clean windows, toilets (public and staff), lunchrooms, store-rooms, staff offices and car parks. Cleaning is physically demanding work and it is not uncommon for cleaners to be afforded approximately two to three hours to complete duties to the specifications detailed by the supermarket. Cleaning performance is regularly checked and scored. If scores for the store are at an unacceptable level in any area cleaners are asked to explain why and what they will do to rectify the situation. It is not uncommon for cleaners to report that they do not consider they are afforded sufficient time to complete all the required specifications to a high level.5 3.5 The FWO report also highlighted that a majority of cleaners interviewed by inspectors during site visits in Tasmania were:  unable to provide details as to the nature of their engagement (e.g. status of employment, identity of employer);  unwilling to advise how much they were being paid;  not receiving payslips;  paid a flat rate for all hours worked;  unaware of the applicable penalty rates under the Cleaning Services Award 2010;  unable to provide a clear indication of the business which employed them (except to provide a first name and sometimes a mobile number of the person they reported to); and  from overseas or of a non-English speaking background.6 3.6 As a result of its audits, the FWO discovered non-compliance with the Cleaning Services Award 2010 by contractors at 90 per cent of Woolworths' sites in Tasmania. It also uncovered a range of breaches resulting in total underpayments of over $64 000.7 In addition to payment contraventions, rostering and payslips and record keeping breaches were also identified.8

5 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 10.

6 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, pp. 12–13.

7 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 3.

8 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, pp. 13–14.

3.7 The FWO report summarised a range of deficiencies in Woolworths' procurement and oversight of its cleaning services: The inquiry found that at the time Woolworths’ approach to procurement and oversight of its cleaning contracts had contributed to a culture of non-compliance characterised by:  significant underpayment of cleaners  multiple levels of subcontracting in breach of the direct terms of Woolworths’ own service agreements  networks of corporate structures reliant on the engagement of vulnerable workers  inaccurate and/or false records  difficulties in identifying the true employers of labour within a supply chain  inadequate monitoring and identification of who is cleaning each site.9 3.8 The FWO report also emphasised that the dollar figure of underpayments was likely much greater than was able to be calculated: …it is estimated that the total underpayment quantum is much greater [than the $64,162.54 calculated], as Fair Work Inspectors were impeded in quantifying employees’ entitlements by poor record-keeping, incomplete, inaccurate and / or false records, and a lack of cooperation from workers. In this respect, the inquiry observed links between the employees’ level of vulnerability, for instance their visa status, and their willingness to provide evidence.10 3.9 Additionally, the FWO report highlighted that Woolworths' on-site identification protocols were often breached in relation to cleaning staff. As a result, Woolworths had no means of verifying who was entering their stores to clean each day and night: The inquiry found it is Woolworths’ policy to require all visitors, including cleaners, to sign a visitors’ book, recording people in the store at any given time. The inquiry found that this requirement and enforcement of it is often ignored with respect to cleaning staff. No evidence was provided to the FWO of a particular contractor being penalised or questioned about breaching the visitors’ book protocol. Cleaners often signed the visitors’ book with the principal contractor’s company name. Consequently, the inquiry found it difficult to identify the true employer of cleaning labour at a particular site, date and time.

9 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 3.

10 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 3.

Inconsistent use of the visitors’ books made it very difficult for the inquiry to verify the accuracy of contractor and sub-contractor records and contributed to the sense of an ‘invisible workforce’.11 3.10 The FWO report further highlighted that cleaners often did not wear or were not properly issued with identification cards, and that Woolworths did not keep accurate records for all employees of subcontractors: The FWO’s site visits also found that identification cards were not worn by the cleaning staff as required by Woolworths, and that this was not monitored. Woolworths was unable to provide copies of all the identification cards that should have been issued to all cleaners working in the stores visited by inspectors. Some cleaners advised inspectors that they worked in Woolworths stores without having completed the relevant induction as required. With no record of them working in the sites, cleaners were open to potential work health and safety risks and exploitation by subcontractors. While identification cards are issued to cleaners after completing an induction, the inquiry found that Woolworths did not keep accurate records for all employees of subcontractors. The inquiry further found that temporary identification cards could simply be printed off by a subcontractor and no records were kept of these either. This made it very easy for workers to enter Woolworths sites with no accurate records of them ever performing work.12 3.11 Ultimately the FWO report concluded that Woolworths had failed on a number of fronts to ensure that its supply chain for cleaning services was legally compliant: The findings of this inquiry indicated that while Woolworths had measures in place to manage the risks of non-compliance in its supply chain relating to cleaning services (for instance, auditing, visitors’ books, identification and limits of contracting), the company failed to invest in ensuring these measures were complied with. By not actively checking to ensure that its principal contractors were complying with the terms of the service agreements, Woolworths failed to properly manage its labour supply chain at the time. Woolworths also failed to appreciate the dynamics of the market below the principal contractor level. Based upon the FWO’s observations and experience of other labour supply chains, there is little utility in establishing governance arrangements if they are not going to be enforced by active, regular and frequent management interventions.

11 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 19.

12 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 19.

In practice, the terms of the service agreements Woolworths had secured with its principal contractors were ‘optional’.13 3.12 The FWO advised that its inquiry had led to three referrals to the Australian Taxation Office concerning cash payments and misleading or false tax declarations, as well as four individuals or entities in the Woolworths' supply chain being subjected to ongoing legal proceedings.14 3.13 Additionally, on 24 August 2018 Woolworths entered into a proactive compliance deed with the FWO.15 A proactive compliance deed is a mechanism used by the FWO to formalise its compliance partnership with a business to 'ensure their systems and processes are working effectively to build a culture of compliance'.16 The FWO explained that it encourages employers that want to publicly demonstrate their commitment to 'compliant, productive and inclusive' Australian workplaces to enter into partnership agreements with it.17 3.14 The Woolworths Group Cleaning Services Proactive Compliance Deed (the deed) stated: Both parties have agreed to enter into this Deed as a proactive compliance partnership as a means to prevent or eradicate exploitation and underpayment in the supermarket cleaning services industry, and to further develop and implement sustainable self-monitoring and compliance arrangements.18 3.15 Under the deed, Woolworths has agreed to report regularly to the FWO on its progress in:  ensuring employee records are accurately maintained by contractors including through photo identification of employees and improved timekeeping systems;

13 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 24.

14 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 3. For an example of the legal proceedings, see the Federal Circuit Court of Australia judgement on Fair Work Ombudsman v OzKorea Pty Ltd & Ors [2018] FCCA 2350 (24 August 2018).

15 Fair Work Ombudsman, 'Woolworths signs up to protect cleaners', Media release, 29 August 2018, www.fairwork.gov.au/about-us/news-and-media-releases/2018-media-releases/august- 2018/20180829-woolworths-pcd-media-release (accessed 23 October 2018).

16 Fair Work Ombudsman, Compliance Partnerships, www.fairwork.gov.au/about-us/our- role/enforcing-the-legislation/compliance-partnerships (accessed 30 October 2018).

17 Fair Work Ombudsman, answers to questions on notice, 25 July 2018 (received 27 August 2018), p. 5.

18 Fair Work Ombudsman, Proactive Compliance Deed – Cleaning Services – Woolworths Group, www.fairwork.gov.au/ArticleDocuments/762/woolworths-group-cleaning-services-proactive- compliance-deed.pdf.aspx, 24 August 2018, (accessed 23 October 2018).

 rectifying underpayments by requiring the primary contractor to back-pay substantiated claims or, when this has not occurred within 20 business days, through an ex gratia payment by Woolworths;  annual audits of contractors conducted by independent expert auditors;  requiring all contractors to agree to make payments to employees by EFT (electronic fund transfer) and not cash, except in exceptional circumstances;  investigating and resolving referred complaints in a timely manner;  maintaining an Internal Compliance Team to conduct unannounced compliance checks of contractors;  promoting accountability at all levels of the supply chain by requiring the primary contractor to enter into a written contract containing prescribed terms with the subcontractor;  ensuring contract prices are sufficient to meet minimum employee entitlements;  promoting the multi-language Speak Up Service which allows contractors, employees and members of the public to report potential non-compliance; and  providing ongoing training to ensure all employees and employers on Woolworths sites are aware of their workplace rights and obligations.19 3.16 A detailed examination on the effectiveness of this deed is contained in the next section of this chapter.

Effectiveness of Proactive Compliance Deeds 3.17 As set out in earlier in this chapter, on 24 August 2018 Woolworths entered into a proactive compliance deed with the FWO. This was in response to a FWO report on the procurement of cleaners in Tasmanian supermarkets which found non-compliance with legal obligations by cleaning contractors at 90 per cent of Woolworths' sites in Tasmania. 3.18 The FWO explained that proactive compliance deeds are documents that it uses to formalise its compliance partnerships: Compliance partnerships give employers and their staff certainty their systems and processes are working effectively and help build a culture of compliance. Compliance partnerships also provide opportunities for franchise operators and head contractors to work with their franchisees and sub-contractors to drive workplace improvements throughout their supply chain.20

19 Fair Work Ombudsman, 'Woolworths signs up to protect cleaners', Media release, 29 August 2018, www.fairwork.gov.au/about-us/news-and-media-releases/2018-media-releases/august- 2018/20180829-woolworths-pcd-media-release (accessed 23 October 2018).

20 Fair Work Ombudsman, answers to questions on notice, 25 July 2018 (received 27 August 2018), p. 5.

3.19 Mr Andrew Howarth, Compliance Manager for Facilities Management at Woolworths informed the committee that working directly with the FWO seemed like 'the logical and best idea' for the business: The idea is that we will work with the Fair Work Ombudsman on an ongoing basis over the next three years minimum to improve our processes.21 3.20 On 11 October 2017 Woolworths entered into a separate and very similar proactive compliance deed with the FWO to address problems of non-compliance in Woolworths' trolley collection contracting arrangements.22 3.21 Maurice Blackburn Lawyers (Maurice Blackburn) and United Voice submitted that there were 'several significant limitations' inherent in the Woolworths Group Cleaning Services Proactive Compliance Deed (the deed).23 These included: (i) an unnecessary limitation of repayment of entitlements; (ii) an unfair onus of responsibility for determining and claiming underpayments; and (iii) inadequate processes to ensure responsible subcontracting.

Unnecessary limitation of repayment of entitlements 3.22 In regard to the first of these limitations, the deed only directs Woolworths to:  ensure, to the extent possible, that Employees who have been underpaid since 1 July 2014 are paid their full employee entitlements due to them under Commonwealth Workplace Laws; and  require Contractors to ensure that their current and future Employees at each Woolworths Site receive the full entitlements due to them under Commonwealth Workplace Laws.24 3.23 Maurice Blackburn and United Voice pointed out that by imposing a limit of 1 July 2014, despite Woolworths' acknowledgment that there were compliance issues identified as early as 2010, Woolworths was denying cleaners who were underpaid before that time their rightful entitlements. The two submitters

21 Mr Andrew Howarth, Compliance Manager, Facilities Management, Woolworths Group, Proof Committee Hansard, 14 September 2018, p. 17.

22 Fair Work Ombudsman, List of Proactive Compliance Deeds, www.fairwork.gov.au/about-us/our- role/enforcing-the-legislation/compliance-partnerships/list-of-proactive-compliance-deeds (accessed 5 November 2018).

23 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), p. 3.

24 Fair Work Ombudsman, Proactive Compliance Deed – Cleaning Services – Woolworths Group, 24 August 2018, p. 9.

noted that the similar 7-Eleven underpayment recovery scheme was not time-limited.25 3.24 The committee sought further information from both Woolworths and the FWO as to why the 1 July 2014 timeframe was chosen. 3.25 Mr Howarth of Woolworths advised that the 1 July 2014 date was 'put in the deed' by the FWO. He noted, however, that Woolworths had undertaken to look at claims of underpayment outside of that time frame: If somebody comes to us with a claim that was pre that [1 July 2014], we will investigate it and look at it. In our calculations, when we are doing investigations and so forth, we do not cut it off at any particular period of time. We will research the whole period of employment time frame.26 3.26 Mr Michael Campbell, Deputy Fair Work Ombudsman (Operations), gave his justification for the mid-2014 cut off point: Our view was that the 2014 period was a period that was marked with particularly poor governance on behalf of Woolworths with regards to its supply chain and cleaning arrangement, and that it was appropriate to ensure that the deed reached far back enough in time to capture that period, so that if workers were underpaid we were able to use the mechanisms that the PCD [proactive compliance deed] provided to recover those underpayments for them where we were unable to.27 3.27 Ms Sandra Parker, Fair Work Ombudsman, further explained that the date was chosen in order to 'capture the greatest number of employees as efficiently as we can': I think we've explained at previous hearings that it is really difficult to get evidence going back many years. Part of what we weigh up as a regulator is to try to get money back as quickly as we can. As you say, these are low-paid workers. We want to get them their back payments as fast as we can. Part of that is to say, 'What is the easiest and quickest way to do that with the evidence that's in front of us?' It was our assessment that this was a fair and reasonable date.28 3.28 Ms Parker further stated that as the negotiated deed only related to Tasmanian workers, the FWO was 'pretty happy' that Woolworths had undertaken to consider claims from their cleaners across all sites nationally.29

25 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), p. 3.

26 Mr Andrew Howarth, Compliance Manager, Facilities Management, Woolworths Group, Proof Committee Hansard, 14 September 2018, p. 24.

27 Mr Michael Campbell, Deputy Fair Work Ombudsman, Operations, Fair Work Ombudsman, Proof Committee Hansard, 14 September 2018, p. 52.

28 Ms Sandra Parker, Fair Work Ombudsman, Proof Committee Hansard, 14 September 2018, p. 53.

29 Ms Sandra Parker, Fair Work Ombudsman, Proof Committee Hansard, 14 September 2018, p. 53.

3.29 When Woolworths was pressed by the committee as to why, if it had undertaken to look at all underpayments, it had simply accepted the 1 July 2014 date proffered by the FWO and not amended it during negotiations, Mr Cameron Sinclair, Public Policy Manager for Woolworths answered: We were trying to be cooperative and we were trying to be expedient to Fair Work. In addition to what is stated in the deed, we have given a clear undertaking that we will cooperate and consider any claim for underpayment that comes to us.30 3.30 On 7 November 2018, Woolworths and the FWO signed a deed of variation to the original proactive compliance deed to amend the timeframe for the rectification of underpayments. The variation made reference to the committee's inquiry: (a) The [24 August 2018] Proactive Compliance Deed currently places obligations on Woolworths to ensure, to the extent possible, that Employees who have been underpaid since 1 July 2014 are paid their full employee entitlements due to them under Commonwealth Workplace Laws. (b) In the period since the Proactive Compliance Deed commenced operating, Woolworths has given evidence in relation to the operation of the Proactive Compliance Deed before the Senate Education and Employment References Committee (Senate Committee) which is conducting the Senate Inquiry into the exploitation of general and specialist cleaners working in retail chains for contracting or subcontracting cleaning companies (Senate Inquiry) (c) During the course of the Senate Inquiry, Woolworths gave evidence to the Senate Committee that it would consider claims from Employees or former Employees for Underpayments pre-dating 1 July 2014 with a view to securing rectification of the same under the processes outlined in the Proactive Compliance Deed. (d) The parties wish to vary the Proactive Compliance Deed to reflect the commitment made by Woolworths in C above.31 3.31 The committee also sought further information from Woolworths as to how it was administering the process for rectifying claims of underpayment. Mr Howarth advised that the deed meant that Woolworths was taking on responsibility for rectifying outstanding payments to cleaners: We have made a commitment that we will rectify any underpayments that our contractors or our head contractors do not. The contractual agreement that we have with our contractors is that any underpayments that are

30 Mr Cameron Sinclair, Public Policy Manager, Woolworths Group, Proof Committee Hansard, 14 September 2018, p. 26.

31 Fair Work Ombudsman, Deed of variation to Proactive Compliance Deed – Cleaning Services – Woolworths Group, 7 November 2018, www.fairwork.gov.au/ArticleDocuments/762/woolworthsgroup-proactive-compliance-deed-variation-7-november-2018.pdf.aspx, (accessed 12 November 2018).

identified are, as a first point of call, their responsibility to fix, as we have paid the correct rates to enable the right award to be passed down. If, for some reason, they do not honour that and do not rectify the underpayment, then we have made a commitment to step in and honour that payment.32 3.32 Woolworths later reiterated that it 'expects the contractors will make good on any underpayments in the first instance': The repayment of underpayments is the responsibility of the head contractor. If the head contractor does not pay, then Woolworths will make the payment and seek reimbursement from the head contractor via our contractual process.33 3.33 Woolworths provided material that indicated the process was coordinated through a service called Speak Up, run by Deloitte. In order to access information or begin the process to claim repayment, a cleaner must call or email Speak Up, or use the Speak Up website which requires a Woolworths specific user name and password.34 3.34 The Speak Up flyer used by Woolworths and provided to the committee can be seen at Appendix 3 of this report. The flyer stated: As part of Woolworths' continuous efforts to improve transparency and accountability, we have introduced an additional way in which potential misconduct can be identified and reported – the 'Speak Up' service… It should be used if you believe that your dealings with any Woolworths' business division, Employees or Service Provider/Contractor may have created or are likely to create issues such as;  Unfair work conditions  Paying under the modern award  Bullying  Harassment  Breach of laws  Safety risks If you are experiencing or know of any of the above issues, contact the 'Speak Up' service. Calls can be anonymous… Calls made to the Speak Up service will be logged by specially trained operators at Deloitte who are used to dealing with sensitive information.

32 Mr Andrew Howarth, Compliance Manager, Facilities Management, Woolworths Group, Proof Committee Hansard, 14 September 2018, p. 17.

33 Woolworths Group, answers to questions on notice, 9 October 2018 (received 23 October 2018), p. 3.

34 Woolworths Group, answers to questions on notice, 9 October 2018 (received 23 October 2018), p. 2.

Each concern is then escalated to a senior nominated Woolworths' representative to investigate.35 3.35 The committee also requested details of how Woolworths had advertised to cleaners that the underpayment rectification process was available. Woolworths advised that it had:  run advertisements in three newspapers on 18 September 2018 (The Australian Financial Review, The Australian and The Hobart Mercury);  published a notice on the Woolworths website on 18 September 2018;  placed a notice on Woolworths public notice boards and team notice boards;  sent correspondence to head contractors advising of their legal requirements and requesting they pass the details of Speak Up to all cleaners;  sent Speak Up flyers to stores to be handed out to all cleaners in May 2018 and November 2018; and  ensured their Field Services Coordinators carry Speak Up flyers to hand out to contractors and cleaners during their visits.36 3.36 The committee notes the complex language used in the advertisements and the fact that they were only run in English-language newspapers. The committee view at the end of this section contains a further assessment on Woolworths' efforts to effectively inform cleaners who were underpaid. 3.37 Woolworths informed that committee that as at 23 October 2018 it had received only seven requests for assistance from cleaners. It stated that it had not repaid any of those cleaners, as its contractors had rectified the identified underpayments. Because of this, Woolworths was unable to provide the committee with a total figure of how much had been repaid, as in some cases the disputed amount was 'unknown' to Woolworths.37 3.38 When queried as to whether it or its contractors had sought to contact all individuals in Tasmania who may be eligible for repayment, Woolworths answered: Woolworths received the names from Fair Work [FWO] of the individuals in Tasmania who were underpaid on the 4th September however we are yet to receive the contact details of the individuals. Fair Work has advised it is seeking approval from the cleaners to pass on the details to Woolworths. We have subsequently requested this information and once received will make contact with each of them.

35 Woolworths Group, answers to questions on notice, 9 October 2018 (received 23 October 2018), pp. 7–8.

36 Woolworths Group, answers to questions on notice, 9 October 2018 (received 23 October 2018), p. 3.

37 Woolworths Group, answers to questions on notice, 9 October 2018 (received 23 October 2018), p. 1.

Mr Trent Mason [General Manager, Facilities Management, Woolworths] contacted the previous Fair Work Ombudsman (Ms Natalie James) prior to her vacating the role [in July 2018] and requested the information. It was after this we received the names but not the contact details. We are still following this up regularly.38

Unfair onus of responsibility for determining and claiming underpayments 3.39 In regard to the second of the aforementioned limitations of the deed put forward by Maurice Blackburn and United Voice, the two organisations commented: The Woolworths deed puts the onus on workers to come forward and claim their entitlements, rather than on Woolworths to pro-actively determine repayments, notwithstanding the fact that the FWO's report acknowledged that most of the cleaners they encountered in the Tasmanian audit were "reluctant to provide specific information that would lead to their employer 'getting in trouble' with the FWO"...39 3.40 They further commented on what was a 'deeply imperfect restitution process': With only $21,332.37 worth of entitlements having been recovered for Woolworths' cleaners at the date of publication of the FWO's report in February 2018, it is clear that this is a deeply imperfect restitution process. There is little reason to believe these vulnerable workers will, as a result of this deed, feel empowered to come forward to navigate a potentially complex process with no documentation.40

Inadequate processes to ensure responsible subcontracting 3.41 In regard to the third limitation identified, that of inadequate processes to ensure responsible subcontracting, Maurice Blackburn and United Voice argued that it was 'manifestly inadequate' that the deed did not place substantive limits on subcontracting. They explained that as contracting beyond a single-tier dramatically raises the risks of non-compliance and underpayment, it should only be permissible in highly limited circumstances (beyond the specialist cleaning context).41 They listed the safeguards that should be in place to ensure that the high risk of non-compliance is minimised:  agreed pricing schedules established in collaboration with a range of stakeholders;  independent monitoring processes;

38 Woolworths Group, answers to questions on notice, 9 October 2018 (received 23 October 2018), p. 3.

39 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), p. 3.

40 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), p. 3.

41 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), pp. 3–4.

 change of contract processes that preserve job security;  worker engagement processes; and  maintenance of a register of subcontractors.42 3.42 Maurice Blackburn and United Voice also highlighted that the deed does not ensure that contract pricing is sufficient to maintain safe productivity levels. They noted that high workloads are a critical problem in the cleaning industry, which leads to some of the highest rates of occupational injury. They also emphasised that contract prices should also be sufficient to cover 'non-wage costs', such as public liability insurance, equipment, materials and administration.43 3.43 Ultimately Maurice Blackburn and United Voice concluded that the deed was a 'missed opportunity to re-set the relationship between Woolworths and the cleaning workforce' and initiate new arrangements to ensure that the cleaners that work in their stores are employed on fair and lawful terms in the future.44

Committee view 3.44 Evidence received during the inquiry clearly demonstrated the ineptitude and distinct lack of care from Woolworths in managing its supermarket cleaning arrangements in Tasmania. 3.45 In particular, the committee considers the FWO finding that Woolworths had no idea who was entering and cleaning its Tasmanian stores to be extremely damning. Such behaviour is highly indicative of the disinterest and incompetence that characterised Woolworths' handling of its store cleaning arrangements in Tasmania. 3.46 Without evidence to the contrary, the committee can only assume that this appalling situation is replicated across the country. 3.47 Additionally, the committee considers that Woolworths' lack of oversight on its cleaning arrangements was demonstrated early in the inquiry when it admitted to the committee it did not maintain a list of the names and contact details of subcontractors engaged by its head contractors to clean its stores. 3.48 That a huge corporation such as Woolworths, part of a duopoly in the Australian grocery market and with 995 sites45 nationwide, does not maintain a

42 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), p. 4.

43 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), p. 4.

44 Maurice Blackburn Lawyers and United Voice, answers to question on notice, 4 September 2018 (received 25 September 2018), p. 4.

45 Woolworths Group, About Us – Woolworths Supermarkets, www.woolworthsgroup.com.au/page/about-us/our-brands/supermarkets/Woolworths (accessed 27 October 2018).

list of the contact details, let alone the names, of the many subcontractor entities engaged to clean its stores every day and night, is incredible. The committee is mystified by such a massive oversight on Woolworths' part. 3.49 The committee considers that Woolworths' use of such fragmented cleaning arrangements to be a deliberate cost-cutting measure which utilises flaws in the existing legal framework, and enabled the corporation to turn a blind eye to the exploitation of low-paid cleaners. 3.50 The committee notes that Coles, Woolworths' main competitor, in general does not outsource its store cleaning, but has instead directly employed its cleaners since 2014, and unlike Woolworths had no adverse finding made against it by the FWO.46 3.51 The committee is of the strong opinion that proactive compliance deeds are not an effective response to the exploitation of workers, particularly where the offending behaviour is shown to be systemic and an embedded workplace practice. 3.52 In the committee's view, proactive compliance deeds do not constitute a significant enough deterrent to businesses that may contemplate exploiting their workers, or lead firms who ignore the non-compliant behaviour of their contractors in order to reap financial benefits. 3.53 In particular, the committee takes issue with the FWO setting arbitrary cut off dates for underpayment recovery schemes, rather than insisting on schemes that are not time-limited. If workers were underpaid their rightful entitlement, it should not matter when that underpayment occurred. 3.54 The committee is extremely concerned about the message being sent to the community if a business sees that it can rip off its workers, and if caught by the FWO and asked to enter into a proactive compliance deed, only be held financially liable for a fraction of its underpayments. 3.55 If this is the 'punishment' meted out to exploitative businesses and lead firms, then non-compliance with the Fair Work Act 2009 becomes a calculated and rational business decision. 3.56 In relation to the specific proactive compliance deed between Woolworths and the FWO for cleaning services, the committee considers that it has been merely designed to work within the current inadequacies of the laws. As a result, the committee considers this specific deed, as well as the approach that informed it more generally, to be deficient in a range of areas. 3.57 The fact that in the deed Woolworths acknowledges that it 'has a moral and ethical responsibility'47 to ensure that all entities and individuals directly

46 Coles, answers to questions on notice, 25 July 2018 (received 24 August 2018), p. 1.

47 Fair Work Ombudsman, Proactive Compliance Deed – Cleaning Services – Woolworths Group, p. 8.

involved in the conduct of its enterprise comply with the law clearly demonstrates that under the existing Fair Work Act, there is no legal responsibility for Woolworths to ensure this. Indeed, Fair Work Ombudsman Ms Sandra Parker confirmed this at a hearing, noting that 'Woolworths had no legal liability'.48 3.58 The committee agrees with the views expressed by Maurice Blackburn and United Voice on the deficiencies of the deed. The fact that the initial deed contained a time limitation on the repayment of entitlements (i.e. only available to workers underpaid since 1 July 2014) was far from ideal. That the responsibility for determining and claiming underpayments falls to cleaners is also not appropriate. 3.59 The committee acknowledges that Woolworths promised to rectify underpayments that occurred before 1 July 2014, if situations were brought to its attention. The committee is pleased that Woolworths and the FWO renegotiated the proactive compliance deed and signed a variance on 7 November 2018 to formally reflect this promise. 3.60 If such a variation had not occurred, the committee would have recommended in this report that Woolworths and the FWO immediately renegotiate the terms of the Woolworths Group Cleaning Services Proactive Compliance Deed to amend the timeframe for addressing underpayments back to 2010 (rather than 1 July 2014) to capture when the non-compliant behaviour was first identified. 3.61 The committee urges Woolworths to continue to work with the FWO in order to actively contact all Tasmanian cleaners affected by underpayments to ensure these individuals are rightfully recompensed. 3.62 In regard to the underpayment rectification process, the committee is aware of Woolworths' efforts to communicate that process to cleaners. 3.63 However, the committee considers that a vague, poorly designed and verbose flyer about Speak Up (see Appendix 3), which does not state explicitly that individuals may be eligible for underpayment, to be an extremely paltry attempt at communication. 3.64 Given the widely known fact that the cleaning workforce is largely made up of vulnerable workers, often culturally and linguistically diverse individuals with English as a second language, the committee considers the use of such unprofessional printed material, as well as an extremely confusing website, and a small print newspaper advertisement, which as far as the committee is aware is only available in English49, to be not 'fit for purpose'.

48 Ms Sandra Parker, Fair Work Ombudsman, Proof Committee Hansard, 14 September 2018, p. 53.

49 The committee notes that this may be in contravention of the Proactive Compliance Deed.

3.65 Additionally, given the strict branding and professional standards that are apparent in all other Woolworths-related public communication material, the committee is incredulous at the obvious and deliberate lack of care demonstrated in the material aimed at communicating with cleaners. 3.66 The committee considers the use of such ill-suited resources to be totally incongruous with Woolworth's claim that they are seriously seeking to rectify the non-compliant behaviour found in its cleaning supply chain. 3.67 The committee believes that if Woolworths were serious in its attempts to assist cleaners to recoup their rightful entitlements, an obvious first step would be professional, 'fit for purpose' resources which communicate clearly in plain English (and other languages, as set out in the FWO Proactive Compliance Deed) what underpaid cleaners are entitled to and how they can access it. 3.68 If Woolworths is committed to facilitating the repayment process in good faith, the committee urges Woolworths to immediately reconsider the ways in which it attempts to communicate with cleaners to ensure that the process is as accessible, transparent and effective as possible. 3.69 On the whole, the committee considers that Woolworths has gotten away with its inept managing of its cleaning supply chain with little accountability and no serious repercussions. 3.70 The committee notes that Woolworths has not disciplined, demoted or terminated any of its management staff over the serious shortcomings that came to light in its governance and contract management processes.50 3.71 The committee considers the proactive compliance deed between the FWO and Woolworths to be a missed opportunity for Woolworths to do the right thing and recalibrate the relationship between it as a powerful, influential company, and the individuals, many in vulnerable demographics, who are contracted to clean Woolworths' stores each day and night. 3.72 In summary, the committee views the actions of Woolworths in managing its cleaning arrangements for its Tasmanian stores as a highly indicative case study highlighting the 'all power, no responsibility' mindset that plagues some businesses under the current legislative framework.

50 Woolworths Group, answers to questions on notice, 25 July 2018 (answered 24 August 3018), p. 2. Note: Woolworths advised that the staff responsible for managing cleaning contracts at the time of the FWO investigation are no longer employees of the company.

timeframes so that all instances of non-compliance can be captured and rectified.

Limitations of the Cleaning Accountability Framework 3.76 Woolworths advised the committee that it had joined the Cleaning Accountability Framework (CAF). Mr Howarth explained: The thing that impressed us about CAF is that it's a model that, essentially, audits and has a star rating for the business on how they manage the contractor. It challenges businesses like Woolworths to be better, to be a part of this agreement and CAF, so that we can help them clean up— pardon the pun—the cleaning industry.51 3.77 The CAF is an independent, multi-stakeholder association that aims to improve labour standards and end worker exploitation in the cleaning industry through a supply chain certification approach. Although currently in a 'trial and pilot stage', it has developed 'social compliance standards' based on a three star (legal compliance), four star (better practice) and five star (best practice) model and is confident it will attract a strong membership.52 3.78 Ms Poonam Datar, Chief Executive Officer of the CAF, provided further detail on the certification process and the pilot phase of the program: To put it on the record, we have 10 pilot sites that we have been looking at. Essentially we are talking about site certification. As the first step, the building owner or property manager would nominate the site for certification. The next step would be a site-level meeting with the participants who are on that site. That might include the building owner, the facility manager and the cleaning company, and United Voice and CAF

51 Mr Andrew Howarth, Compliance Manager, Facilities Management, Woolworths Group, Proof Committee Hansard, 14 September 2018, pp. 18–19.

52 Cleaning Accountability Framework, Submission 15, p. 1; and Mr Anthony Beck, Chair, Cleaning Accountability Framework, Proof Committee Hansard, 14 September 2018, p. 44.

would be there to talk about what that process is going to entail. The next step would be an audit. You could almost call that a two-pronged audit approach, where one part is based on documentary evidence. That is undertaken by an independent auditor. They will come out and assess payroll, make sure tax and super payments are being made, and assess workplace policies and procedures on the site. The second part of it is the worker engagement side of things. I would say that is almost a social audit that we are undertaking. This is about engaging the cleaners in the process to ensure that, if there are issues on a site, those are rectified before that site achieves certification or to make sure there aren't any issues on that site. That is a key component of what we are doing, because we want to include the cleaners' voice within the certification process and also have that as the ongoing compliance piece of certification. Once a report is drafted on the base of what has been determined through the evidence checks and worker engagement, a certification panel that CAF convenes assesses those results and, on that basis, can decide whether that site has achieved the level of certification, be it three, four or five stars.53 3.79 The CAF written submission set out the background to the development of the voluntary framework: CAF developed as a response to the ‘race to the bottom’ mentality inherent in the cleaning services industry which has led to non-compliance with labour regulations, poor quality cleaning services, irresponsible contracting and unreasonably low contract prices. These practices have ultimately resulted in high levels of industrial non-compliance and exploitation of vulnerable workers.54 3.80 It further explained that it wanted companies that adopted 'best practice procurement models' to be appropriately recognised: CAF recognises that in order to improve practices in the cleaning industry, we need to adopt a whole of supply chain approach with the aim of levelling the playing field. By setting appropriate standards and benchmarks at the outset – i.e. at the point of procurement – good labour and service practices, as well as a sustainable business model should follow. There are leading companies who are adopting best practice procurement policies who should be recognised for their efforts.55 3.81 The committee queried the chair of the CAF, Mr Anthony Beck, on whether the existence of the CAF indicated that there was a lack of effective measures in the Fair Work Act to prevent cleaners in supply chains from being exploited:

53 Ms Poonam Datar, Chief Executive Officer, Cleaning Accountability Framework, Proof Committee Hansard, 14 September 2018, p. 44.

54 Cleaning Accountability Framework, Submission 15, p. 1.

55 Cleaning Accountability Framework, Submission 15, p. 2.

Senator CAMERON: Isn't the issue of the Cleaning Accountability Framework really a demonstration that there is a lack of effective legislation in this area? Mr Beck: I think the short answer is yes. Senator CAMERON: I suppose if workers had access to recourse other than a voluntary organisation, if the system worked effectively, there wouldn't be a need for Cleaning Accountability Framework. Mr Beck: I agree with that.56 3.82 Submitters who expressed support for the CAF also acknowledged that if the workplace laws were operating properly, there would perhaps be no need for a voluntary system such as the CAF.57 3.83 For example, the Australian Council of Trade Unions (ACTU) emphasised: The CAF is a valuable initiative which the ACTU supports. However, as a voluntary scheme, the CAF cannot possibly replace a legal framework that allows employees to meaningfully negotiate with the entity that determines their pay and which makes that entity legally responsible for their protection. The existence of the CAF should not be used as an excuse to not take further steps.58

Committee view 3.84 The committee considers that the very existence of the CAF demonstrates that the current system of regulation is failing. 3.85 The committee argues that if the current laws were sufficient and there were adequate regulatory measures in place, there would be no need for the CAF at all. 3.86 Although the committee commends the CAF's trials, and acknowledges that it may lead to some improvement, it does not see the CAF as a primary solution to the problems of exploitation plaguing the contract cleaning industry. 3.87 The committee is of the opinion that as the CAF is a voluntary initiative, it will not attract the kinds of unscrupulous companies who engage in wage theft and other kinds of non-compliant behaviour. 3.88 As such, the committee thinks that while the CAF may be a useful supplement to target non-compliance in the cleaning industry, it cannot be relied upon to address the shortcomings of the actual compulsory, legal protections for

56 Mr Anthony Beck, Chair, Cleaning Accountability Framework, Proof Committee Hansard, 14 September 2018, p. 44.

57 See for example Mr Greg Vickery, Chair, Business and Human Rights Committee, Law Council of Australia, Proof Committee Hansard, 14 September 2018, p. 36; and Ms Lyndal Ryan, Secretary, Australian Capital Territory Branch, United Voice, Proof Committee Hansard, 14 September 2018, p. 16.

58 Australian Council of Trade Unions, Submission 11, p. 4.

workers. This is because there will always be rogue, exploitative operators who choose to function outside of the legal, and most certainly voluntary, compliance frameworks.

Recommendation 6 3.89 The committee recommends that the Government not solely rely on voluntary measures such as the Cleaning Accountability Framework to address the gaps in legal protections for workers. 3.90 The committee notes that under the current legislative framework the CAF is a positive but inadequate approach to dealing with wage theft and worker exploitation in the cleaning industry.

Chapter 4 Parallels in the public sector

4.1 The core focus for the inquiry was the treatment of workers in the retail cleaning sector. 4.2 As the Australian Council of Trade Unions (ACTU) argued, the rise of fragmented employment and the current legal framework allows large corporations to retain all the power but none of the responsibility.1 Although corporations at the head of a supply chain essentially control the wages and conditions of cleaners through the prices they set for their contracting arrangements, many turn a blind eye to the workplace realities of the workers performing the service. This is made possible by virtue of the legal separation between large, head-of-chain corporations and the workers that provide their labour. 4.3 The behaviour of Woolworths in relation to the cleaning arrangements of its stores in Tasmania was a prime example of this attitude in the private sector. 4.4 However, the committee also received evidence of similar behaviour in the public sector. 4.5 United Voice drew the committee's attention to a complex contracting arrangement involving the Commonwealth Department of Finance and head contractor Broadspectrum. 4.6 In the 2016-17 Budget, the Government announced Property Services Coordinated Procurement (PSCP) arrangements to cover leasing services and facilities management services, including cleaning services, for Commonwealth domestic office accommodation and shopfronts.2 4.7 According to the Department of Finance, the PSCP arrangements seek to 'improve the efficiency of property services across the Commonwealth and maximise the value for money that can be achieved by consolidating the Commonwealth's purchasing power'.3 4.8 Under the PSCP arrangements, the Department of Finance engaged Broadspectrum as a Property Service Provider to provide core leasing services

1 Australian Council of Trade Unions, Submission 11, p. 2.

2 Department of Finance, Property Services Coordinated Procurement, www.finance.gov.au/Property- Services-Coordinated-Procurement/ (accessed 30 October 2018).

3 Department of Finance, Property Services Coordinated Procurement, (accessed 30 October 2018).

and facilities management services to entities, and additional services as negotiated.4 4.9 Broadspectrum then subcontracted to a number of companies for the provision of cleaning services to Commonwealth office buildings. For example, cleaning services for the Department of Jobs and Small Business offices in the Australian Capital Territory, New South Wales and Tasmania were subcontracted to a cleaning company called Jarrah Integrated Services (Jarrah).5 4.10 The Department of Jobs and Small Business summarised the arrangement for the committee: Broadspectrum have been engaged by the Department of Finance under a whole-of-government arrangement for the provision of property services. The Department of Finance have allocated to the Department of Jobs and Small Business Broadspectrum as our property service provider. Their job for us is to source and deliver property services. They have sourced for us cleaning services, following the cessation of our earlier contract—our prior contract. They have subcontracted three entities, one of which is a company called Jarrah Integrated Services. They've also subcontracted Pacific Services Group Holdings and First People Property Group to provide cleaning services across a range of Department of Jobs and Small Business offices. Jarrah Integrated Services will be cleaning our offices in the ACT, New South Wales and Tasmania; Pacific Services Group Holdings will be cleaning our office in Townsville; and First People Property Group will clean our Victoria state office and our regional offices.6 4.11 Jarrah is a joint venture 49 per cent owned by a cleaning company called PrompCorp.7 As discussed below there are very close management links between Jarrah and PrompCorp as well as a third associated entity named Pioneer Facility Services. Although Jarrah was awarded the cleaning contract with Broadspectrum it appears that Broadspectrum also have a cleaning contract with PrompCorp.8 For the purpose of the following discussion the

4 Department of Finance, Property Services Coordinated Procurement, (accessed 30 October 2018).

5 Mr Scott Wallace, Group Manager and Chief Technology Officer, Technology and Services, Department of Jobs and Small Business, Proof Committee Hansard, 14 September 2018, p. 46.

6 Mr Scott Wallace, Group Manager and Chief Technology Officer, Technology and Services, Department of Jobs and Small Business, Proof Committee Hansard, 14 September 2018, p. 46.

7 Mr Scott Wallace, Group Manager and Chief Technology Officer, Technology and Services, Department of Jobs and Small Business, Proof Committee Hansard, 14 September 2018, p. 46.; see also Mr Ben McGaw, Chief Executive Officer, PrompCorp, Proof Committee Hansard, 18 October 2018, p. 8.

8 Mr Kevin McCafferty. Executive General Manager, Procurement, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 5.

committee uses 'Jarrah/PrompCorp' to refer to the closely aligned management structures providing cleaning services on behalf of Broadspectrum. 4.12 United Voice advised that nine out of 24 cleaners who had previously cleaned the Department of Jobs and Small Business offices under Asset Industries no longer had jobs after the contract changed to Jarrah/PrompCorp. United Voice also advised that other cleaners who kept their jobs suffered a pay cut of six per cent and lost substantial hours of work.9 4.13 Jarrah/PrompCorp confirmed that under their previous contract with Asset Industries, the cleaners were paid 16 per cent above the award rate. After beginning work with Jarrah/PrompCorp, still cleaning the same offices, the cleaners wages were reduced to 10 per cent above the award, equivalent to a six per cent cut.10

Acting ethically 4.14 The committee queried the Department of Finance whether it knew when it awarded the contract to Broadspectrum that the cleaners engaged to clean the Department of Jobs and Small Business offices in Canberra would suffer a six percent pay cut under the new contract arrangements. The Department of Finance indicated it was not aware of this because it did not know the details of the arrangement that was in place with Asset Industries, the previous contract holder.11 4.15 When asked why this was the case, representatives of the Department of Finance responded that 'it had no need to': ACTING CHAIR [Senator Cameron]: You said you did not know what Asset Services were being paid. Is that correct? Ms Johnson: We do not have visibility of that contract. ACTING CHAIR: Right. If you had asked—what government department was it with? Ms Johnson: Department of Jobs and Small Business. ACTING CHAIR: Did you ask the Department of Jobs and Small Business what workers were being paid? Ms Johnson: We had no need to.12

9 Ms Erryn Cresshull, Organiser, Australian Capital Territory branch, United Voice, Proof Committee Hansard, 14 September 2018, p. 10.

10 Mr Benjamin McGaw, Chief Executive Officer, PrompCorp, Proof Committee Hansard, 18 October 2018, p. 12.

11 Mr Andrew Jaggers, Acting Deputy Secretary, Proof Committee Hansard, 18 October 2018, p. 17.

12 Ms Vivianne Johnson, Acting First Assistant Secretary and Mr Andrew Jaggers, Acting Deputy Secretary, Department of Finance, Proof Committee Hansard, 18 October 2018, p. 15.

4.16 When asked about the establishment of the contract with Broadspectrum, Department of Finance officials claimed that they had relied on the Commonwealth Procurement Rules (CPRs): We've very much modelled the contracting arrangements between the Commonwealth and Broadspectrum on the Commonwealth Procurement Rules. In particular, there are specific references, both in the Commonwealth Procurement Rules and in the contract that we have with Broadspectrum, to the ethical behaviour that they must abide by, including that entities and subcontractors can't seek a benefit from supplier practices that may be dishonest, unethical and unsafe.13 4.17 However, the committee notes that 'the core rule' under the CPRs, issued by the Department of Finance, is to achieve 'value for money'.14 The CPRs go on to state the requirements for achieving value for money including: Officials responsible for a procurement must be satisfied, after reasonable enquires, that the procurement achieves a value for money outcome. Procurements should…use public resources in an efficient, effective, economical and ethical manner that is not inconsistent with the policies of the Commonwealth…15 4.18 The CPRs then expand on the meaning of 'efficient, effective, economical and ethical'.16 With respect to the last term the CPRs state that 'ethical relates to honesty, integrity, probity, diligence, fairness and consistency...'17 4.19 The CPRs make clear that the four factors used to ensure the achievement of value for money (efficient, effective, economical and ethical) 'must be considered in meeting the core rule of achieving value for money.'18 4.20 The committee received evidence that the Department of Finance had effectively outsourced its ethical procurement responsibility to contractors. When asked whether the ethical procurement approach under the PSCP arrangements differed in any way to the requirements under the CPRs (in particular clause 4.4 and 6), the Department of Finance responded:

13 Mr Andrew Jaggers, Acting Deputy Secretary, Department of Finance, Proof Committee Hansard, 18 October 2018, p. 7.

14 Department of Finance, Commonwealth Procurement Rules – Achieving value for money, 1 January 2018, www.finance.gov.au/sites/default/files/commonwealth-procurement-rules-1-jan- 18.pdf (accessed 1 November 2018), subclause 3.2, p. 9.

15 Department of Finance, Commonwealth Procurement Rules – Achieving value for money, 1 January 2018, subclause 4.4 p. 14, emphasis added.

16 Department of Finance, Commonwealth Procurement Rules – Achieving value for money, 1 January 2018, clause 6, p. 14.

17 Department of Finance, Commonwealth Procurement Rules – Achieving value for money, 1 January 2018, p. 14.

18 Department of Finance, Commonwealth Procurement Rules – Achieving value for money, 1 January 2018, subclause 4.4 p. 14, emphasis added.

The Department of Finance has passed down relevant practical elements of the Commonwealth Procurement Rules to the service providers through the coordinated procurement Deeds. This includes adapting the ethical procurement framework set out in the Commonwealth Procurement Rules to reflect that procurement by the service providers will be undertaken by a company, rather than Commonwealth officials.19

Renegotiating the contract 4.21 The committee queried whether Jarrah/PrompCorp would be willing to sit down with United Voice, on behalf of the cleaners, to negotiate an agreement that restored the wage rate for the cleaners that had suffered a pay cut. 4.22 Mr Benjamin McGaw, Chief Executive Officer of PrompCorp and Director of Jarrah, emphasised that the companies had 'signed a contract with a set price on a commercial model that has been built up' and that this was a 'constraint'. However, he stated that if a contract renegotiation was something Broadspectrum wanted to pursue, it would be something they 'could negotiate'.20 4.23 The committee then asked Broadspectrum whether it had the capacity under its contract with the Department of Finance to pay more if an enterprise agreement was negotiated between the cleaners and Jarrah/PrompCorp. Mr Michael Barlow, General Manager of National Operations for Broadspectrum Property answered 'I'm not able to commit to an increase at this point'.21 4.24 The committee subsequently queried the Department of Finance as to whether it would be open to renegotiating the terms of the contract with Broadspectrum, should Broadspectrum and its subcontractors negotiate with cleaners to increase pay rates: ACTING CHAIR: Okay. So, Mr Jaggers, if Broadspectrum and their subcontractors negotiate an enterprise agreement that requires extra funding from the Department of Finance, is that available? Mr Jaggers: No, Senator.22

19 Department of Finance, answers to questions on notice, 31 October 2018 (received 9 November 2018), p. 3 (emphasis added).

20 Mr Benjamin McGaw, Chief Executive Officer, PrompCorp, Proof Committee Hansard, 18 October 2018, p. 19.

21 Mr Michael Barlow, General Manager, National Operations (Broadspectrum Property), Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 19.

22 Mr Andrew Jaggers, Acting Deputy Secretary, Department of Finance, Proof Committee Hansard, 18 October 2018, p. 19.

Public interest immunity claim 4.25 At a public hearing on 18 October 2018 the committee requested that the Department of Finance provide details of the contract and tender documents between the Department of Finance and Broadspectrum. 4.26 The Department of Finance refused to provide the documents and subsequently the Minister for Finance and the Public Service, Senator the Hon Mathias Cormann lodged a claim of public interest immunity on behalf of the Government. The claim stated: The documents sought by the committee contain detailed, commercially sensitive information relating to contracting processes including tender content and other information which would be of significant commercial value. The release of this information would set a precedent that could result in businesses ceasing to engage in commercial arrangements with the Commonwealth on the basis that such an engagement could risk publication of valuable commercially sensitive information. This outcome would materially impact the Commonwealth's ability to negotiate and contract with commercial entities.23 4.27 The committee formally considered and rejected the claim and accordingly reports this matter to the Senate.

Committee view 4.28 The committee considers that the situation described above is a clear example of the negative impacts of fragmented employment chains and ultra-competitive contracting arrangements. This layered public sector procurement arrangement closely parallels the arrangements which are being pursued by some large corporations in the private sector. 4.29 In such situations, the entity at the top of the chain (in this circumstance the Department of Finance) sets contract conditions prioritising a simple 'value for money' criterion, and while intermediaries in the middle (Broadspectrum and Jarrah/PrompCorp) can respond to these conditions to ensure they make a profit, those at the bottom (the cleaners) are left with no bargaining power resulting in wages trending towards the legal minimum entitlement of the award. This undermines one of the key objects of the Fair Work Act 2009 (Fair Work Act) to achieve 'productivity and fairness through an emphasis on enterprise‑level collective bargaining...'24 4.30 The committee notes that under the CPRs Department of Finance officials must consider various factors to ensure that procurement achieves value for money, including a specific requirement to take into account ethical considerations.

23 Public interest immunity claim lodged by Senator the Hon Mathias Cormann, Minister for Finance and the Public Service on behalf of the Commonwealth Government (received 9 November 2018).

24 Section 3(f), Fair Work Act 2009.

4.31 The committee acknowledges that the Department of Finance included contractual obligations on Broadspectrum which requires ethical behaviour on the part of Broadspectrum and its subcontractors to not seek a benefit from supplier practices that may be dishonest, unethical and unsafe. 4.32 However, the committee sees no evidence that the Department of Finance sought to understand the workplace conditions of the cleaning workers who would be directly impacted by the new contracting arrangements. 4.33 In this regard the committee considers that the Department of Finance has shown a total disregard for the ethical responsibility it holds in its role of 'price maker', demonstrating no care for the welfare of those individuals performing the cleaning services and no desire to balance those considerations against other factors required by the CPRs such as efficiency. This is despite the obligation in the CPRs for officials to make reasonable enquires before determining if the procurement achieves value for money. 4.34 The committee finds it concerning that the Department of Finance has prioritised efficiency over its ethical duty to low-paid workers. 4.35 Although the committee acknowledges that importance of the prudent use of public resources and the need to procure services in an efficient and economical way, the committee is of the strong opinion that these outcomes should not be achieved at the expense of vulnerable workers. 4.36 Additionally, the committee is highly concerned by evidence indicating that the Department of Finance has effectively outsourced its ethical procurement responsibilities to contractors. The committee considers this approach to be extremely troubling. Such behaviour epitomises the 'all power, no responsibility' attitude demonstrated by some major corporations and that is now also evident in the public sector. Such attitudes confirm the committee's concerns about the deliberate distance price makers such as the Department of Finance put between themselves and the vulnerable workers whose labour they are ultimately benefitting from. 4.37 The committee is of the strong opinion that the Government should be a leader in ethical procurement and contracting. 4.38 Just as the Government and Commonwealth agencies have an obligation to behave as 'model litigants' (as set out in the Legal Services Directions 2017), the committee considers that the Commonwealth should also have an obligation to behave as a 'model procurer'. 4.39 The committee considers that setting contract parameters that effectively undercut existing workers, or not bothering to check whether this is the case, as the Department of Finance did to the cleaners of the Department of Jobs and Small Business offices in Canberra, is not acting ethically. To the committee's

mind, such behaviour does not demonstrate the required 'honest, integrity, probity, diligence, fairness and consistency' set out in the CPRs. 4.40 To this end, the committee makes the following two recommendations.

Links with non-compliant companies 4.43 In addition to the information about the pay cuts meted out to the cleaners, the committee also received concerning evidence illustrating the intricate links between Jarrah, PrompCorp and another cleaning company, Pioneer Facility Services (Pioneer). 4.44 For example, the three companies list identical addresses for each of their respective offices in Victoria, New South Wales, South Australia, Western Australia, the Northern Territory, Queensland and Tasmania.25 4.45 Additionally, the Chief Executive Officer of PrompCorp is Mr Benjamin McGaw. Mr McGaw is also Chief Executive Officer of Pioneer. Mr McGaw is also a director of Jarrah.26 4.46 Mr Francis (Frank) Xavier Scarce is the sole director of PrompCorp. Mr Scarce is also the managing director of Pioneer.27 4.47 In a Federal Circuit Court of Australia judgment handed down on 24 August 2018, Pioneer was found to be 'knowingly concerned' in the underpayment of workers in Woolworths supermarkets in Tasmania.28

25 PrompCorp, www.prompcorp.com.au/ (accessed 30 October 2018); Jarrah Integrated Services, www.jarrahis.com.au/ (accessed 30 October 2018); Pioneer Facility Services, www.pioneerfs.com.au/contact.php (accessed 30 October 2018).

26 Mr Ben McGaw, Chief Executive Officer, PrompCorp, Proof Committee Hansard, 18 October 2018, p. 8.

27 Mr Ben McGaw, Chief Executive Officer, PrompCorp, Proof Committee Hansard, 18 October 2018, p. 8.

28 Fair Work Ombudsman v OzKorea Pty Ltd & Ors [2018] FCCA 2350 (24 August 2018). The committee understands the penalty has yet to be determined.

4.48 Ms Erryn Cresshull, an organiser for the Australian Capital Territory branch of United Voice elaborated on why the links between Jarrah, PrompCorp and Pioneer had caused the union to highlight the case to the committee: The cleaners I've spoken about have been discarded by Prompcorp, a company whose sole director was involved in a company found guilty of wage theft. The company was found guilty last month in the Federal Court of being aware of underpaying cleaners of more than $20,000. The underpayments relate to cleaners in Woolworths in Tasmania, which you'll be very aware of in this committee. As you will know, the Fair Work Ombudsman found that 90 per cent of cleaners in Woolworths Tasmania were being underpaid. It would be bad enough if this were the director's sole moment in the sunshine of coming to the attention of the authorities, but another company featuring the same director was found guilty in December of underpaying cleaners and was fined $16,000. That was the case relating to the cleaners in the Myer stores. What this means is that workers in the office buildings in Canberra have been sacked or had their conditions slashed by a company director whose previous companies have been found guilty on two occasions of wage theft.29 4.49 The committee queried Broadspectrum as to whether it was aware that two of the companies it had contractual relationships with (i.e. Jarrah and PrompCorp30) were closely integrated with a company (i.e. Pioneer) that had previously engaged in non-compliant behaviour. Broadspectrum indicated that it was aware of the situation: Mr McCafferty: My understanding is that, at the moment, we have no contractual relationships with Pioneer. We do with Prompcorp and we do with Jarrah. ACTING CHAIR [Senator Cameron]: But Pioneer is a related entity. Ms Suchanek: Yes. That's correct. ACTING CHAIR: They are related entities, so the behaviour of one is an issue for you. Ms Suchanek: That's right. Under the terms of our tier-4 high-level due diligence, the due diligence requires a review of Jarrah and Prompcorp and any related entity as part of that corporate group. ACTING CHAIR: I understand there is an appeal underway, but Justice McNab found that Pioneer were knowingly concerned in underpayment contraventions. Are you aware of that?

29 Ms Erryn Cresshull, Organiser, Australian Capital Territory branch, United Voice, Proof Committee Hansard, 14 September 2018, p. 10.

30 Mr Kevin McCafferty. Executive General Manager, Procurement, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 5.

Ms Suchanek: Yes.31 4.50 The committee asked Broadspectrum to outline the due diligence it undertook in relation to its interactions with Pioneer, Jarrah and PrompCorp. Ms Marianne Suchanek, Group Risk and Compliance Counsel for Broadspectrum's Legal and Governance Group explained: We conducted tier 1 and tier 2 due diligence, which was low-risk and medium-risk due diligence. At the time that we conducted that due diligence, we had considered declarations regarding legal issues as declared by PrompCorp and Pioneer regarding the underpayment of Woolworths and Myer workers. At the time of the due diligence of the tier 1 and tier 2 stages, it was determined by the Fair Work Commission that the underpayment of the Myer workers was an administrative error. From that, we determined it was not a systemic issue, but what we did do was build in protective measures. The purpose of the protective measures was to ensure that we protected the employees' payments under the subcontract arrangements and did the right thing by our clients, and also to ensure that we met our contractual and legal obligations. The protective measures that we have built in require that the contractors employ their direct workforce. As a precondition to payment claim, they are required to declare that they have employed their direct workforce. They are required to also declare that they've provided a statutory declaration to that effect. They are also required to declare that they have paid our workers in accordance with the award and to provide supporting documentation for that. Other protective measures also require, under our standard subcontract terms and conditions, that they comply with our code of business conduct and, with that, the business partners policy, which requires that they conduct themselves using ethical corporate practices. Under the terms of our subcontract arrangement, failure to do so would be deemed a serious breach and, as such, they would be terminated under the terms of our contract.32 4.51 Ms Suchanek further advised that in addition to undertaking initial due diligence for each of the subcontractors, Broadspectrum was now undertaking tier 4 due diligence of PrompCorp and Jarrah after becoming aware of the adverse findings against Pioneer: …I can confirm that our tier 4 due diligence has been triggered in relation to the Fair Work Ombudsman's findings regarding the underpayment of the Woolworths workers [by Pioneer]. In that instance, the findings determined that there was no administrative error. It went beyond the administrative area.33

31 Mr Kevin McCafferty. Executive General Manager, Procurement, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 5; Ms Marianne Suchanek, Group Risk and Compliance Counsel, Legal and Governance Group, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 5.

32 Ms Marianne Suchanek, Group Risk and Compliance Counsel, Legal and Governance Group, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 4.

33 Ms Marianne Suchanek, Group Risk and Compliance Counsel, Legal and Governance Group, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 4.

4.52 Ms Suchanek continued: Broadspectrum is concerned. At present, the workers under our contract have not been underpaid. Nevertheless, we value ethical corporate business practice. In light of the recent findings under the Fair Work Ombudsman that the underpayment went beyond the administrative area, we have triggered our tier 4 due diligence, which requires a higher level of due diligence, re-evaluating the protective measures. We recognise that, yes, it is important to deliver value for money but that value for money must be consistent with our corporate ethical practices, without cutting corners.34

Committee view 4.53 The committee is deeply concerned that the Government, through head contractor Broadspectrum, have chosen to engage and associate with companies such as PrompCorp that are closely linked to individuals who have shown blatant disregard, on more than one occasion, for their legal workplace obligations. 4.54 The committee acknowledges that Broadspectrum is now conducting further due diligence to reassess their links with these companies. 4.55 The committee again notes that the CPRs include directions on ethical behaviour. Specifically, the committee notes that the CPRs state: Relevant entities must not seek to benefit from supplier practices that may be dishonest, unethical or unsafe. This includes not entering into contracts with tenderers who have had a judicial decision against them (not including decisions under appeal) relating to employee entitlements and who have not satisfied any resulting order. Officials should seek declarations from all tenderers confirming that they have no such unsettled orders against them.35 4.56 The committee considers it appropriate that the CPRs be expanded to prevent a tenderer from entering a contract with any corporation or an associated entity that has been penalised for being non-compliant with any employee entitlement laws. The CPRs should require that officials seek declarations from all tenderers confirming that all corporations and associated entities they intend to subcontract with do not have a history of non-compliant behaviour.

34 Ms Marianne Suchanek, Group Risk and Compliance Counsel, Legal and Governance Group, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 4.

35 Department of Finance, Commonwealth Procurement Rules – Achieving value for money, 1 January 2018, subclause 6.7, p. 15.

on more than one occasion for being non-compliant with any employee entitlement laws.

Chapter 5 Growing fragmentation of employment relations

5.1 Throughout the inquiry the committee received compelling evidence about the growing fragmentation of employment relationships, a trend that leads to high levels of regulatory and award non-compliance and ultimately facilitates the exploitation of workers. Chapter 2 of this report provides background details on this trend. 5.2 Professor Andrew Stewart, a specialist in employment law and workplace relations at the University of Adelaide, and Dr Tess Hardy, an academic at the University of Melbourne with expertise in employment and labour law, both provided evidence to the committee in their private capacities. They explained how businesses fragment corporate structures and working arrangements into loosely connected networks to essentially 'blur responsibility' for ensuring workplace compliance: A key feature in such arrangements, whether they involve subcontracting, labour hire, franchising, the use of corporate groups or other types of ‘supply chain’, is the creation of legal distance between a worker and a ‘lead business’ that ultimately benefits from their labour. Even if the worker is employed, and can identify underpayments or other breaches of labour standards by their employer, all too often that employer no longer exists, or otherwise does not have the assets to meet any judgment against them.1 5.3 The Centre for Business and Social Innovation at the University of Technology Sydney described the fragmentation of the commercial cleaning industry, characterised by 'a contractual pyramid or supply-chain structure, with building owners and tenants at the apex: Building owners and their tenants rarely have any direct responsibility for the working conditions of cleaners, instead outsourcing cleaning services to businesses that specialise in offering cleaning contracts. Larger cleaning firms may outsource work to smaller ones, with a growing number of franchise operators and small cleaning contractors. At the bottom end of these supply chains lies a workforce of cleaners who are low-paid, award-reliant and largely unorganised.2 5.4 The Centre for Business and Social Innovation also emphasised the ultra-competitive dynamic present in this kind of fragmented structure, and the adverse impact this has on workers:

1 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 2 (citations omitted).

2 Centre for Business and Social Innovation, University of Technology Sydney, Submission 3, p. 4 (citations omitted).

Competition amongst cleaning contractors is fierce, with the business offering the lowest price frequently having the greatest success in being awarded contracts. As many clients of the industry view cleaning as a necessary cost to be minimised, there is considerable supply chain pressure on contractors to reduce costs. Moreover, the few large cleaning contractors, who set the tone and pace of competition, frequently bid for contracts at a loss to squeeze out competitors. Given that labour is the main cost of a cleaning business, those large contractors then attempt to mitigate any losses by subcontracting work to cheaper providers, thereby reducing labour costs.3 5.5 It ultimately concluded that the supply-chain approach prevalent in the cleaning industry has resulted in high levels of regulatory and award non-compliance, intensified exploitation of cleaners, and poor outcomes for businesses.4 5.6 Echoing these points, the Australian Council of Trade Unions (ACTU) stated that the driving factor behind the exploitation of cleaners in supply chains was 'a simple economic imperative': While the legal requirements may be clear, the competitive contracting systems results in a market where the only way to survive is to pay below the minimum award and legislated rates. …where obeying the law is a recipe for financial ruin, worker exploitation has become a rational business model.5 5.7 Additionally, the committee heard evidence about 'price takers' versus 'price makers'. Price makers are usually those entities at the top of a supply chain who determine the price of a contract, while price takers are typically those at the bottom of a supply chain who must accept that price. The workers at the bottom of these fragmented employment structure invariably have no capacity to influence the price setting that occurs.6 5.8 In this regard Dr Sarah Kaine, a Research Director of the Centre for Business and Social Innovation, explained: It is the Woolworths and the Coles and the retail sector and the big property owners in the commercial cleaning sector who are the price makers. This applies across any industry where there's a supply chain. In our view, and in the view of much of the research that we have conducted in other sectors but also in other parts of the world, it should be the price makers, not the price takers, who are responsible for ensuring that there is

3 Centre for Business and Social Innovation, University of Technology Sydney, Submission 3, p. 4 (citations omitted).

4 Centre for Business and Social Innovation, University of Technology Sydney, Submission 3, p. 4 (citations omitted).

5 Australian Council of Trade Unions, Submission 11, p. 3.

6 Mr Josh Bornstein, Principal Lawyer, Maurice Blackburn Lawyers, Proof Committee Hansard, 4 September 2018, p. 8.

enough money in that contract for not only the basics but better wages and conditions.7 5.9 The Building Service Contractors Association of Australia, the national representative body of the contract cleaning industry, also mentioned the concept of price taking in explaining why cleaners are exploited in retail chains: Retail in Australia is dominated by a small handful of large players. Those large players set rates, conditions and the overarching economic paradigm of the retail industry. Suppliers of cleaning services are very much price-takers in such an environment. No one would seriously argue that cleaning service suppliers are price-setters!8 5.10 Dr Hardy opined that the fragmentation of work relationships was a matter of concern for regulators and policymakers as it threatened the integrity of the employment law framework: …much of the Fair Work Act is premised on the assumption that there is a binary employment relationship in place, that there are two main parties to the contract—and frequently we're seeing that that's not the case, that there are a number of entities above and beyond the employer that are really influencing the performance of work and benefiting from the labour. And they are largely insulated from any issues that occur at the workplace. If that employee is underpaid, their main recourse is against the legal employer at common law, but frequently we are seeing—there is just case after case brought by the Fair Work Ombudsman and the unions, where, either before the proceedings commence or once they have ensued, the direct employer goes into liquidation, insolvency, or is deregistered, so the employer no longer exists or there are no assets available with which the worker can seek redress.9 5.11 The Australian Industry Group (Ai Group) defended the use of these fragmented employment arrangements such as subcontracting and outsourcing: Subcontracting arrangements often lead to increased productivity, efficiency, quality and customer service because the work is carried out by specialised businesses that are able to focus upon their particular area of speciality.10 5.12 The Ai Group denied that there was a need for legislative change to provide additional protections to workers.11 It asserted that no amendments were needed to the Fair Work Act 2009 (Fair Work Act) as there were already 'very

7 Dr Sarah Kaine, Research Director, Centre for Business and Social Innovation, University of Technology Sydney, Proof Committee Hansard, 4 September 2018, p. 29.

8 Building Service Contractors Association of Australia, Submission 2, p. 3.

9 Dr Tess Hardy, private capacity, Proof Committee Hansard, 25 July 2018, p. 32.

10 Australian Industry Group, Submission 17, p. 9.

11 Australian Industry Group, Submission 17, p. 9.

comprehensive' protections in place to protect workers in exploitation. It argued that the accessorial liability provisions in section 550 of the Fair Work Act already provide an effective and adequate means of holding persons responsible if they are knowingly involved in breaches of the Fair Work Act or industrial instruments.12 5.13 However, as set out earlier in this section, and expanded upon later in this chapter, the committee received a wealth of evidence rebutting this argument. 5.14 For example, in February 2018 the then Fair Work Ombudsman Ms Natalie James acknowledged the impact of fissured work arrangements in a speech to the Association of Industrial Relations Academics of Australia and New Zealand conference: The Fair Work Ombudsman does not set out to pass value judgments on the nature of business operations, stifle innovation or the entrepreneurial spirit. But our experience is the most vulnerable workers end up in the most exploitative scenarios. And these cases usually involve some sort of ‘fissuring’ in the relationships between those doing the work and those benefiting from the labour.13 5.15 The effectiveness of legislative measures to combat the negative outcomes of employment relationship fragmentation is discussed in the following section.

Effectiveness of the accessorial liability provisions of the Fair Work Act 5.16 Section 550 of the Fair Work Act relates to accessorial liability. It extends liability for breaches of the statute to a person 'involved in' someone else's contravention.14 5.17 A person is involved in a contravention if they:  have aided, abetted, counselled or procured the contravention; or  have induced the contravention, whether by threats or promises or otherwise; or  have been in any other way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or  have conspired with others to effect the contravention.15 5.18 Section 550 allows action to be taken for contraventions by directors or senior managers of a company which is not the immediate employer. However,

12 Australian Industry Group, Submission 17, pp. 4–5.

13 Ms Natalie James, Fair Work Ombudsman from July 2015 to July 2018, Address to the 2018 Association of Industrial Relations Academics of Australia and New Zealand Conference, 7 February 2018, www.fairwork.gov.au/ArticleDocuments/764/AIRAANZ%20Presentation.pdf.aspx, p. 5 (accessed 26 October 2018) (emphasis added).

14 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 2 (citations omitted).

15 Section 550 of the Fair Work Act 2009.

according to Professor Stewart and Dr Hardy, in practice the need to establish 'actual knowledge' of the contravention makes it very hard to pursue lead businesses, regardless of the extent to which their business practices may have contributed to the relevant breaches.16 5.19 Amendments made as part of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017, which passed on 5 September 2017, supplemented the accessorial liability provisions contained in section 550 to enable franchisors and holding companies to be held responsible for breaches of the Fair Work Act in certain circumstances.17 5.20 Under the current Fair Work Act, section 558B provides that, providing certain conditions are met, franchisors and holding companies can be held responsible for a breach by a franchisee or subsidiary of  the National Employment Standards;  an industrial instrument (e.g. an award or enterprise agreement);  the rules concerning the payment of wages or the keeping of records; or  the prohibitions on sham contracting. 5.21 The franchisor or holding company, or one of their officers, must have known about the breach, or should reasonably have known of it, or could reasonably have expected that a similar breach would be likely to occur. Liability can be avoided if the franchisor or holding company took reasonable steps to prevent such breaches.18 5.22 Professor Stewart and Dr Hardy observed that although this amendment has significantly strengthened the law for ensuring compliance with the employment standards established by the Fair Work Act, it only did so for two particular types of business model: In our view, the arguments for holding companies and franchisors to be held responsible for certain contraventions affecting workers who they do not directly employ apply with equal force to other business models, whether involving labour hire, subcontracting, the use of affiliated companies that are not technically subsidiaries, or more elaborate supply chains.19 5.23 To address this problem, Professor Stewart and Dr Hardy recommended amendments to the Fair Work Act to incorporate the 'essential concepts' of section 558B, expressed in terms sufficiently general so as to apply to any form of corporate or commercial arrangements. They highlighted that the

16 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 2.

17 Department of Jobs and Small Business, Submission 7, p. 6.

18 Law Council of Australia, Submission 16, p. 7; Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 2.

19 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 3.

amendments would also retain the safeguards already present in section 558B (ie taking reasonable steps) to prevent regulatory overreach.20 5.24 Professor Stewart and Dr Hardy provided further detail on this proposal to the committee: Specifically, we propose that a person (whether an individual or a corporate entity) should be liable for an employer’s contravention of the NES [National Employment Standards], an industrial instrument, the rules concerning the payment of wages or the keeping of records, or the prohibitions on sham contracting, where the person: (a) has a significant degree of influence or control over the employer’s affairs, or over the wages or employment conditions of the relevant employee(s); (b) knew or could reasonably be expected to have known that the contravention (or a contravention of the same or a similar character) would occur; and (c) cannot show that they have taken reasonable steps to prevent a contravention of the same or a similar character. Whether a person has significant influence or control over wages or employment conditions should be determined by reference to the substance and practical operation of arrangements for the performance of the relevant work. A person should be deemed to have significant influence or control if it sets or accepts a price for goods or services, or for the use of property, at a level that practically constrains the capacity of the relevant employer to comply with its obligations.21 5.25 Professor Stewart and Dr Hardy reasoned that such an amendment would be an appropriate response to the types of non-compliant practices seen in the cleaning sector (and other industries), and also work to minimise regulatory avoidance strategies.22 5.26 They further argued that the amendment would set the same threshold for secondary liability as that currently applied in the Fair Work Act to franchisors and holding companies: The main change we recommend, in broadening its application to other types of arrangement, is the deeming provision. A business at the top of a lengthy supply chain may set a price or demand an economic return from a party with whom it is directly dealing that is so low that contraventions of employment standards further down the supply chain become inevitable. So long as that should be reasonably apparent to the lead business, it should not be able to hide behind its lack of direct influence or

20 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 3.

21 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 3.

22 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 3.

control over the actual employer or the working conditions of those performing the relevant work.23 5.27 At a public hearing Dr Hardy was questioned on whether there was 'significant difference' between a franchise arrangement and a contract arrangement in relation to control. Dr Hardy clarified that although there were some differences between franchise networks and supply chains, as well as differences between labour hire and corporate groups, the amendments she and Professor Stewart proposed did not go beyond what was reasonable to expect from the businesses community: There are a whole range of organisational forms that we now see in labour market. The idea of our proposal was to allow and capture the diversity of arrangements that we now see without making it unduly onerous. We certainly were very conscious that we did not want it to go beyond what was commercially viable or to suppress the kind of economic imperatives of the business community. At the same time, we are very conscious of the need to reframe these provisions to address some of the worst forms of exploitation that we're seeing in the labour market.24 5.28 WEstjustice Community Legal Centre (WEstjustice) indicated that it supported Professor Stewart and Dr Hardy's proposal.25 However, it also indicated that the requirement for a 'significant degree of influence of control' as a threshold test could be problematic for its clients, particularly in a supply chain context where a lead firm may turn a blind eye to exploitation and therefore not have or take 'significant' control over non-compliant subcontractors.26 5.29 As an alternative, WEstjustice put forward several other recommendations to amend the Fair Work Act, including:  extending liability to all relevant third parties;  widening the definition of 'responsible franchisor entity';  clarifying the liability of all third parties;  clarifying the 'reasonable steps' defence to incentivise compliance;  extending outworker protections to contract cleaners and workers in other industries; and  removing the requirement for actual knowledge and requiring accessories to take positive steps to ensure compliance.27 5.30 In making these recommendations it argued that the law should 'equally hold all businesses to account if they receive the benefit of someone's labour,

23 Professor Andrew Stewart and Dr Tess Hardy, Submission 8, p. 3.

24 Dr Tess Hardy, private capacity, Proof Committee Hansard, 25 July 2018, p. 34.

25 WEstjustice Community Legal Centre, Submission 20, p. 17.

26 WEstjustice Community Legal Centre, Submission 20, p. 17.

27 WEstjustice Community Legal Centre, Submission 20, pp. 17–20.

regardless of how they structure their affairs in an attempt to shirk responsibility'.28 5.31 JobWatch supported the legislative amendments put forward by Professor Stewart and Dr Hardy, highlighting that it approved of the approach 'in imposing a positive obligation on client entities to take reasonable steps to ensure that the entities with which they contract are complying with the [Fair Work] Act'.29

Committee view 5.32 The committee is of the strong opinion that the current provisions in the Fair Work Act fall short in addressing the range of ways that workers are exploited. 5.33 While acknowledging the improvements stemming from the passage of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017, the committee considers there is more to be done to provide a more comprehensive solution to the deliberate and systematic exploitation of vulnerable workers that occurs in some Australian workplaces. 5.34 The committee notes that during the Senate Education and Employment Legislation Committee's inquiry into the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, the Franchise Council of Australia (FCA) raised concerns that franchising as a business model was being unfairly singled out and targeted with the proposed legislative change. The FCA recognised that Fair Work Act contraventions and workplace pay irregularities are not restricted to the franchise sector and argued that 'any new legislation should reflect the economy-wide nature of the employee underpayment concern.'30 5.35 The committee is persuaded by evidence received during this inquiry illustrating that the increasing fragmentation of employment relationships, resulting in complex supply chains involving several layers of contracting and sub-contracting, leads to increased regulatory and award non-compliance. 5.36 While this inquiry has focused on the cleaning industry, the committee notes evidence from a number of submitters that these practices are also prevalent in other industries.31

28 WEstjustice Community Legal Centre, Submission 20, pp. 17–20. Detailed drafting notes for these recommendations submitted by WEstjustice can be found at Appendix 4 of this report.

29 JobWatch, Submission 12, p. 11.

30 Senate Education and Employment Legislation Committee, Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 [Provisions], May 2017, p. 11; and Franchise Council of Australia, Submission 9, pp. 9 and 16, Senate Education and Employment Legislation Committee, Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 [Provisions].

31 See for example Mr Martijn Boersma, Lecturer, Centre for Business and Social Innovation, University of Technology Sydney, Proof Committee Hansard, 4 September 2018, p. 29; and United Voice, Submission 9, p. 25.

5.37 The committee finds it wholly unacceptable that large corporations and businesses, while still essentially controlling the wages and conditions of cleaners through the provision of contracts, are able to distance themselves from the workplace conditions and entitlements of these workers. 5.38 Through being 'price takers', the effects are essentially shunted down the line until they come to rest with the most vulnerable individuals in the whole operation, cleaners. 5.39 The committee considers that the outcome of this attitude for these businesses—that of all power and no responsibility—is ethically and legally precarious. 5.40 As such, the committee sees merit in the proposal for legislative amendments to the Fair Work Act as recommended by Professor Stewart and Dr Hardy. 5.41 Finally, the committee acknowledges the point made by the Ai Group that there are some circumstances where it is appropriate for businesses to utilise subcontracting and outsourcing arrangements.32 5.42 However, it vehemently disagrees with the Ai Group's assertion that to amend legislation to better protect workers in these chains would somehow 'interfere' with these arrangements. Businesses that use subcontracting and outsourcing arrangements in a legitimate, legal and appropriate way have nothing to fear from legislative amendment designed to ensure the protection of vulnerable workers.

32 Australian Industry Group, Submission 17, p. 9.

 knew or could reasonably be expected to have known that the contravention (or a contravention of the same or a similar character) would occur; and  cannot show that they have taken reasonable steps to prevent a contravention of the same or a similar character. 5.45 The committee recommends that the amendment specify that whether a person has significant influence or control over wages or employment conditions should be determined by reference to the substance and practical operation of arrangements for the performance of the relevant work. 5.46 The committee further recommends that the amendment specify that person should be deemed to have significant influence or control if it sets or accepts a price for goods or services, or for the use of property, at a level that practically constrains the capacity of the relevant employer to comply with its obligations. 5.47 The committee also recommends that the proposals put forward by WEstjustice be adopted in so far as they are consistent with the above recommendations.

Collective bargaining 5.48 Evidence set out earlier in this chapter about the 'price maker' and 'price taker' imbalance prevalent in the cleaning sector suggests there is a need to examine changes to collective bargaining laws in order to allow cleaners to negotiate adequate pay and conditions. 5.49 Maurice Blackburn Lawyers (Maurice Blackburn) submitted that the way in which large companies are able to set contract conditions, effectively applying pressure down supply chains or fragmented employment arrangements to suppress wages, had led to a collapse in collective bargaining.33 5.50 Mr Josh Bornstein, Principal Lawyer for Maurice Blackburn outlined his observations on this matter: If there is a collapse in collective bargaining then my strong submission to you all is that there is no bargaining. Let me explain that. This is not just a collapse in collective bargaining; it's a collapse in bargaining simpliciter. I see employment contracts every day of my working life. They are in identical terms. They contain template terms that are very easily recognisable to me. I can even discern the font of the law firm that prepared them; I can tell a Herbert Smith Freehills contract from a King & Wood Mallesons contract from a K&L Gates contract. They are all in identical terms, and there is no evidence of any bargaining that goes on.34

33 Mr Josh Bornstein, Principal Lawyer, Maurice Blackburn Lawyers, Proof Committee Hansard, 4 September 2018, p. 8.

34 Mr Josh Bornstein, Principal Lawyer, Maurice Blackburn Lawyers, Proof Committee Hansard, 4 September 2018, p. 8.

5.51 Mr Ian Scott, Principal Lawyer for JobWatch explained the inevitable link between the set contract prices dictated by lead firms and the lack of bargaining power experienced by cleaners: …I think, because the contract price is driven down so low there is already no margin to negotiate better than the relevant modern award, if they are ever being paid that in the first place. So employer entry wouldn't be viable if they managed to get an enterprise agreement up that went higher than the modern award because their whole business model is based on the bare minimums at best.35 5.52 Dr John Martin, Policy and Research Officer for the Queensland Council of Unions also observed that the capacity of cleaners to bargain is non-existent if tender prices for contracts are set too low, particularly once the profit margins for contractors are factored in: …if the tender price is low enough, I'd suggest that the contractor can't even comply with the award, let alone bargain for something that may be superior to it. Then you've got to factor in a profit margin for the contractor, and if it gets subcontracted further then that's two sets of profit margins that you've got to factor in. Yes, the thought that a group of workers would be in any way able to bargain as is envisaged by the Fair Work Act is—it couldn't happen.36 5.53 In response to the lack of bargaining power afforded to low paid workers across a variety of industries, the ACTU has argued for multi-employer bargaining. For example, in a speech on 4 October 2018, Ms Sally McManus, Secretary of the ACTU stated: People need to be able to negotiate fairly with real bosses – those who have the capacity to say yes. Our narrow, restrictive system of single-enterprise bargaining has failed in so many industries because business owners are encouraged to undercut one another to compete on wage costs. To compete in a race to the bottom.37

Committee view 5.54 To the committee's mind it is clear that the unilateral imposition of contract terms set by the lead firm and accepted by the intermediary (i.e. the contractor or subcontractor) means that cleaners are left with no bargaining power. In essence, lead firms are setting the price of contracts in a way that makes it impossible for workers to bargain.

35 Mr Ian Scott, Principal Lawyer, JobWatch, Proof Committee Hansard, 19 July 2018, p. 23.

36 Dr John Martin, Research and Policy Officer, Queensland Council of Unions, Proof Committee Hansard, 19 July 2018, pp. 27–28.

37 Ms Sally McManus, Secretary, Australian Council of Trade Unions, Speech to John Curtin Research Centre Gala Dinner, 4 October 2018, www.actu.org.au/media/1034110/181004-john-curtin-research- gala-dinner-speech-sally-mcmanus.pdf (accessed 2 November 2018), p. 8.

5.55 The committee considers that the increased fissuring of the employment arrangements has rendered the current bargaining laws insufficient and not fit for purpose. If lead firms seek the lowest cost tender, there is no capacity for the employees of the contractors or subcontractors to bargain. 5.56 In light of this, the committee is of the view that the effectiveness of collective bargaining, designed to rebalance the relative bargaining position across supply chains, must be thoroughly examined.

Chapter 6 Additional measures to address non-compliant behaviour

6.1 As set out in Chapters 2–5, the fragmentation of employment relationships (e.g. contracting and employment chains), as well as the non-compliant and exploitative behaviours that often accompany such arrangements, are rife in the cleaning industry and other sectors. As United Voice emphasised: In many in industries, the use of labour hire and subcontracting results in a much higher incidence of exploitation and unlawful behaviour than arises from direct employment relationships.1 6.2 In its 2018 report into the procurement of retail cleaners in Tasmania, the Fair Work Ombudsman (FWO) clarified that it did not hold views on the respective merits of operating models such as insourcing or outsourcing, and that its interest in the topic extended 'only to whether a particular model is lawful and its impact on compliance in the labour supply chain'. However, it noted: …the FWO’s experience is that multiple levels of subcontracting can create conditions which allow non-compliance to occur. The reasons for this include the pressures of multiple businesses taking a profit as additional subcontractors are added to the contracting chain, and the perceived ability to hide non-compliance within convoluted business structures.2 6.3 A number of stakeholders emphasised the need for further measures to ensure that vulnerable workers are not preyed upon by unscrupulous business operators. The exploitative behaviours discussed included:  the inappropriate use pyramid subcontracting;  the misuse of labour hire arrangements;  and illegal phoenixing. 6.4 This chapter will examine each of these matters in turn.

Pyramid subcontracting 6.5 The Law Council of Australia (Law Council) informed the committee that multiple levels of contracting created an environment which allowed non- compliance to flourish: There is a pressure on every level of the subcontracting business to make a profit, coupled with a common belief that complex business structures can

1 United Voice, Submission 9, p. 25.

2 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, www.fairwork.gov.au/reports/inquiry-into-the-procurement-of-cleaners-in- tasmanian-supermarkets/download-pdf (accessed 28 October 2018), p. 15.

be deliberately used to hide non-compliance, facilitates exploitation of those at the bottom of the subtracting chain, who are often already a vulnerable demographic.3 6.6 The Law Council reported that two examples of such non-compliance commonly disguised in pyramid subcontracting in cleaning were:  one cleaner being provided with the wages for all employees (for them to redistribute to their fellow workers in cash); and  sham contracting.4 6.7 Sham contracting is when workers are wrongly and deliberately identified as independent contractors (when by law they are actually employees) by businesses to avoid paying proper employee entitlements such as superannuation.5 6.8 The Law Council drew the committee's attention to an example of pyramid subcontracting uncovered in the FWO's investigation and report into the procurement of retail cleaners in Tasmania: In the [FWO's] Woolworths Inquiry, it was found that the contract price paid by Woolworths was sufficient to meet employee minimum entitlements, but only if there were no more than two levels of contracting. In fact, there was in fact up to four levels of subcontracting, in breach of the terms of Woolworths’ own service agreement.6 6.9 The FWO report set out the case study which clearly encompassed both of these non-compliant behaviours: Contractor A operated as a principal contractor in Tasmania for cleaning several Woolworths sites. The inquiry encountered significant difficulties in determining the identity of the employer of labour at each of the sites. There were a number of sites where there was more than one level of subcontracting occurring, with both the principal contractor and subcontractors adding additional levels to the labour supply chain at different times. As an example, at some sites, Contractor A subcontracted to a wholly owned subsidiary, Contractor B. Contractor C (not related to contractors A or B) acting as a ‘middle player’ then subcontracted to Contractor D. Contractor D then paid an employee on behalf of all workers, and that employee then paid other employees in cash. Contractor D also engaged some purported independent contractors who were really employees.7

3 Law Council of Australia, Submission 16, p. 10.

4 Law Council of Australia, Submission 16, p. 10.

5 Law Council of Australia, Submission 16, p. 11.

6 Law Council of Australia, Submission 16, p. 11.

7 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 16.

6.10 The FWO concluded: The multiple layers of people involved in the payment of workers and the insufficient records provided to the inquiry made it difficult for the FWO and the supermarket [Woolworths] to identify the true employer in some instances.8 6.11 The FWO included a flow chart in its report to illustrate the many levels of subcontracting it found at some Woolworths sites in Tasmania:

Figure 6.1—Case study labour hire supply chain

Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, p. 16.

6.12 To combat the high risk environment created by multiple levels of subcontracting, the Law Council recommended that legislation should be enacted to limit subcontracting arrangements to a maximum of two levels.9

Committee view 6.13 The committee understands that there may at times be valid reasons for a business to engage in legitimate contracting or subcontracting arrangements, an argument put forward to this inquiry by several industry stakeholders. 6.14 However, the committee cannot ignore the compelling evidence from credible stakeholders such as expert academics and the FWO that multiple levels of

8 Fair Work Ombudsman, An inquiry into the procurement of cleaners in Tasmanian supermarkets, February 2018, p. 16.

9 Law Council of Australia, Submission 16, p. 13.

subcontracting create conditions which allow non-compliant behaviour and the subsequent exploitation of workers to flourish. 6.15 In light of this evidence, the committee is of the strong opinion that the less removed that cleaners (or for that matter, any other contracted workers) are from the engaging business, the better the ability of that business to have oversight and monitor the conditions and payments of those individuals to ensure they are being lawfully remunerated. 6.16 For this reason, the committee sees potential in the suggestion put forward by the Law Council to limit the number of levels of contracting to two. However the committee acknowledges that in certain circumstances there may be legitimate reasons for businesses to utilise multi-tiered contracting arrangements. 6.17 The committee encourages the Government to assess how problematic pyramid subcontracting can be eliminated.

Recommendation 12 6.18 The committee recommends that the Government consider an appropriate legislative framework to address the problems identified with pyramid subcontracting.

Misuse of labour hire arrangements 6.19 Similar to the exploitation that can flourish in pyramid subcontracting situations, labour hire arrangements can also disguise non-compliant behaviour due to the distance between the business receiving the service and the individual workers performing that service. 6.20 Mr Greg Vickery, Chair of the Law Council Business and Human Rights Committee outlined how labour hire arrangements are used in the cleaning industry: It is often the case that labour-hire cleaning contractors will employ workers to provide a cleaning service to such organisations and the workers are assigned to clean for the host organisation that pays the labour-hire contractor a fee for providing the on-hire cleaners.10 6.21 The Law Council provided the committee with a summary of the labour hire licensing legislation in operation in Victoria, Queensland and South Australia.11 It recommended that a national labour hire licensing scheme be

10 Mr Greg Vickery, Chair, Business and Human Rights Committee, Law Council of Australia, Proof Committee Hansard, 14 September 2018, p. 35.

11 Law Council of Australia, Submission 16, p. 7.

established.12 Mr Vickery noted that it would be beneficial for workers to have a national scheme in place: It would be good to have a common national system, and that would provide some additional protection for workers in this space. We see that as another element, and this is an area where you would need federal-state cooperation to achieve a national system.13 6.22 Maurice Blackburn Lawyers (Maurice Blackburn) submitted that there was a need for consistency on the issue nationally: Labour Hire and particularly the rogue, 'invisible' labour hire operators, often operate outside employment frameworks and routinely exploit workers. While a number of states are implementing Labour Hire Licensing schemes, there is still the outstanding issue of how federal laws intersect with these schemes, while other states continue to be without a framework at all.14 6.23 The Australian Council of Trade Unions (ACTU) also recommended the establishment of a national labour hire licensing scheme: Such a scheme should include the capacity to undertake audits regarding compliance with employment standards, taxation and superannuation payments; and to investigate allegations of breaches and impose penalties. It should also include a ‘fit and proper’ persons test for all operators and directors.15 6.24 United Voice echoed the recommendation from the ACTU, while WEstjustice Community Legal Centre (WEstjustice) also submitted that there was a strong need for a national labour hire licensing scheme.16 6.25 Professor Allan Fels, when speaking in his role as chair of Migrant Workers' Taskforce, advised the committee that labour hire was 'on the agenda' and that options to deal with unscrupulous labour hire operators were policy issues being examined by the Taskforce.17

Committee view 6.26 The committee understands that there may be legitimate reasons for businesses to utilise labour hire arrangements. The committee does not have a problem with these legitimate uses, provided they operate within the bounds of the Fair Work Act 2009 (Fair Work Act).

12 Law Council of Australia, Submission 16, p. 7.

13 Mr Greg Vickery, Chair, Business and Human Rights Committee, Law Council of Australia, Proof Committee Hansard, 14 September 2018, p. 39.

14 Maurice Blackburn Lawyers, Submission 4, p. 3 (citations omitted).

15 Australian Council of Trade Unions, Submission 11, p. 6.

16 United Voice, Submission 9, p. 31; and WEstjustice Community Legal Centre, Submission 20, p. 20.

17 Professor Allan Fels AO, Chair, Migrant Workers' Taskforce, Proof Committee Hansard, 4 September 2018, p. 1.

6.27 However, similar to its views on pyramid subcontracting, the committee is persuaded by evidence indicating that fragmented employment arrangements with convoluted labour hire based supply chains work to generate conditions that are demonstrably high risk for illegal behaviour that exploits workers. 6.28 Because of this, the committee is of the opinion that there is a need for a national labour hire licensing scheme to ensure that unscrupulous operators are not afforded the chance to abuse labour hire arrangements and take advantage of vulnerable workers. 6.29 The committee considers that such an initiative would be highly beneficial in assisting lead firms in choosing ethically sound and legally compliant labour hire operators to engage with.

Recommendation 13 6.30 The committee recommends that the Government, in consultation with all states and territories, establish a national labour hire licensing scheme.

Illegal phoenixing 6.31 Illegal phoenixing activity involves the deliberate stripping and transferring of assets from one company to another by individuals or entities to avoid paying its debts, including taxes, creditors and employee entitlements. This fraudulent behaviour has numerous detrimental impacts to the community, many of which are pertinent to the cleaning industry, including:  the non-payment of wages, superannuation and accrued employee entitlements;  creating an unfair competitive advantage over other businesses that are following the law;  the non-payment of suppliers;  the avoidance of regulatory obligations; and  the loss of government revenue through the non-payment of tax and the need for increased monitoring and enforcement activities.18 6.32 WEstjustice drew the committee's attention to instances of illegal phoenixing its clients had encountered: Many of our clients are unable to recover unpaid wages through no fault of their own. In some instances, an employer has provided false details, or has simply “disappeared”. We have contacted employers on a number of occasions only to be provided with fake email addresses, fake postal addresses, and false promises of repayment. A significant problem for WEstjustice clients is the phenomenon of phoenix companies—whereby

18 Australian Taxation Office, Illegal phoenix activity, www.ato.gov.au/general/the-fight-against-tax- crime/our-focus/illegal-phoenix-activity/ (accessed 28 October 2018).

directors close down companies to avoid paying debts, and proceed to open a new company without penalty.19 6.33 Similarly, JobWatch advised that it received a 'significant number' of calls from employees seeking to recover entitlements from contract cleaning companies where their employer has become insolvent, and in many cases, uncontactable.20 6.34 WEstjustice recommended the introduction of director identity numbers to stop unethical directors using illegal phoenixing methods to reap profits from the exploitation of workers.21 United Voice and the ACTU also echoed this recommendation.22 6.35 The Australian Taxation Office (ATO) advised that exposure draft legislation for the director identification number initiative was publicly issued on 1 October 2018.23 At a public hearing the ATO appeared to indicate that the implementation of the initiative was 'quite complex'.24 Ms Aislinn Walwyn, Assistance Commissioner noted: It's part of a much more complex digital transformation. The Digital Transformation Agency is looking at the modernisation of business registries, an identification issue, and the director identification number is dependent on those measures having the right platform and having the right protocols.25 6.36 The Law Council suggested that given the complexity of identifying and regulating illegal phoenixing activity, regulators needed to utilise 'proactive, creative and innovative' responses: …identifying illegal phoenixing behaviour necessitates whole-of- government information sharing and dissemination. Where this is obstructed by confidentiality laws, the Law Council suggests that legislative restrictions be amended to facilitate and promote information sharing and dissemination between government agencies and the ATO.26

19 WEstjustice Community Legal Centre, Submission 20, p. 8.

20 JobWatch, Submission 12, p. 9.

21 WEstjustice Community Legal Centre, Submission 20, p. 8.

22 United Voice, Submission 9, p. 24; Australian Council of Trade Unions, Submission 11, p. 6.

23 Australian Taxation Office, letter of correction relating to evidence given on 14 September 2018, received 19 October 2018, p. 1.

24 Ms Aislinn Walwyn, Assistant Commissioner, Phoenix, Australian Taxation Office, Proof Committee Hansard, 14 September 2018, p. 48.

25 Ms Aislinn Walwyn, Assistant Commissioner, Phoenix, Australian Taxation Office, Proof Committee Hansard, 14 September 2018, p. 49.

26 Law Council of Australia, Submission 16, p. 14.

6.37 Mr Vickery of the Law Council elaborated on the matter at a public hearing: In terms of phoenix companies, ASIC [Australian Securities and Investments Commission] has had quite a focus on this, and it does seem to the Law Council that it would be worthwhile having the regulators talk to each other more about this to get the benefit of the work that ASIC is doing, so we don't see recidivists and people who aren't meeting their obligations… It's that information [on directors who have been involved in phoenixing] that's not being shared, probably the circumstances of the companies involved which is not shared with, for instance, the ATO, who could then track that a new company is being formed. The concern is that you've got a company that doesn't pay its workers' entitlements, goes into voluntary liquidation and then starts up again a few months later. All the regulators should be aware of that and monitoring performance the second time around.27 6.38 To solve this problem, the Law Council recommended:  Legislative confidentiality restrictions inhibiting the ability for the ATO to receive information from the Australian Securities Investments Commission and other key governmental agencies should be amended to better assist in the anticipation, identification and prevention of illegal phoenix activity.  Any amendments to promote improved information sharing should also be matched with appropriate resourcing and engagement with industry to increase the ability of regulators to anticipate and deter fraudulent phoenix activity.28 6.39 The ATO reported that there were 'barriers' to information sharing but appeared to indicate that those barriers were there for legitimate reasons.29 Ms Walwyn stated: Various agencies have secrecy provisions and some of those constraints concern procedural fairness constraints within agencies. Under the Phoenix Taskforce the ATO can share its information with its members. That's not necessarily the case with other agencies providing information to the ATO.30

27 Mr Greg Vickery, Chair, Business and Human Rights Committee, Law Council of Australia, Proof Committee Hansard, 14 September 2018, p. 36.

28 Law Council of Australia, Submission 16, p. 14.

29 Ms Aislinn Walwyn, Assistant Commissioner, Phoenix, Australian Taxation Office, Proof Committee Hansard, 14 September 2018, p. 50.

30 Ms Aislinn Walwyn, Assistant Commissioner, Phoenix, Australian Taxation Office, Proof Committee Hansard, 14 September 2018, p. 50.

Committee view 6.40 The committee is aware of the work of the Phoenix Taskforce, an initiative coordinated by the ATO comprising 32 federal, state and territory government agencies.31 6.41 The committee is also aware that in September 2017 the Government announced a 'comprehensive package of reforms' to address illegal phoenix activity, including the introduction of a Director Identification Number.32 6.42 The committee strongly urges the Government to implement such reforms as quickly as possible so that unethical directors can no longer use illegal phoenix activities to avoid their legal obligations to workers. 6.43 The committee sees the merits in the recommendations put forward by the Law Council to better facilitate whole-of-government information sharing in order to assist in identifying illegal phoenixing behaviour.

Recommendation 15 6.45 The committee recommends that the Government work to amend legislative confidentiality restrictions inhibiting the ability for the Australian Taxation Office to receive information from the Australian Securities and Investments Commission and other key government agencies in order to better assist in the anticipation, identification and prevention of illegal phoenix activity. 6.46 The committee also recommends that any legislative amendments to promote improved information sharing be matched with appropriate resourcing and engagement with industry as well as procedural safeguards.

31 Australian Taxation Office, Phoenix Taskforce, www.ato.gov.au/General/The-fight-against-tax- crime/Our-focus/Illegal-phoenix-activity/Phoenix-Taskforce/?=redirected (accessed 28 October 2018).

32 The Hon Kelly O'Dwyer MP, Minister for Revenue and Financial Services from 19 July 2016 to 28 August 2018, 'A comprehensive package of reforms to address illegal phoenixing', Media release, 12 September 2017, http://kmo.ministers.treasury.gov.au/media-release/090-2017/ (accessed 28 October 2018).

Chapter 7 Additional measures to assist vulnerable workers

7.1 This chapter turns to matters related to several additional measures needed to further assist vulnerable workers, not only in the retail cleaning industry, but also more generally across Australian workplaces.

Outreach to culturally and linguistically diverse communities 7.2 Numerous inquiry submitters highlighted the need for specific strategies and initiatives to assist workers from cultural and linguistically diverse (CALD) backgrounds to navigate the employment law framework and access assistance in the event that they are exploited. 7.3 As noted in Chapter 2, the cleaning industry is characterised by a high proportion of workers who were born overseas or have English as a second language.1 Low entry requirements mean the sector has minimal language or skill set barriers, making it attractive to migrants and international students.2 In this regard the Federation of Ethnic Communities' Councils of Australia (FECCA) submitted: Migrants and CALD Australians constitute a significant proportion – if not majority – of Australia’s cleaning workforce. This includes Australian citizens and permanent residents of migrant and refugee background, international students, migrant workers and other temporary visa holders such as partners of students and skilled migrants.3 7.4 FECCA observed that the Fair Work Act 2009 (Fair Work Act) and its associated regulations, rules and awards created a complex system that could prove difficult for vulnerable workers to navigate, particularly if they have limited English, limited time and limited knowledge of government and community infrastructure.4 7.5 FECCA elaborated on what approaches could be taken to address this problem: More information needs to be provided in simple English, languages other than English, through multiple channels and be industry specific. Efforts should be made to make this information available to all visitors to

1 Fair Work Ombudsman, Submission 14, pp. 1–2. The FWO noted that data specific to cleaners working retail chains was not available.

2 Law Council of Australia, Submission 16, p. 5.

3 Federation of Ethnic Communities' Councils of Australia (FECCA), Submission 10, p. 1.

4 FECCA, Submission 10, p. 4.

Australia with rights to work as well as any other visa holders at risk of exploitation. All information provided should give links to advocates, legal services as well as the FWO to help workers to pursue their rights where they believe they are being exploited. Adequate funding of ethno-specific organisations with knowledge in worker rights as well as resources for community legal services for employment-related caseload is essential. Because of the intersection between migrant labour exploitation and immigration issues, cases of worker exploitation involving CALD Australians and migrant workers can be very complex.5 7.6 In making this commentary, FECCA acknowledged the efforts of the Fair Work Ombudsman (FWO) in engaging with Australia's multicultural sector and making its information available in a range of accessible formats and languages.6 7.7 FECCA recommended the expansion of culturally and linguistically appropriate information provision regarding worker rights within CALD communities in Australia, with a particular focus on new arrivals and temporary visa holders.7 7.8 The WEstjustice Community Legal Centre (WEstjustice) put forward similar evidence to FECCA, emphasising that without targeted legal assistance for newly arrived migrant or refugee workers, the workplace relations systems remained largely inaccessible: Education not only informs people about their rights at work and where they can find help, but also empowers communities to enforce their rights by building relationships and trust between vulnerable workers and services that can assist.8 7.9 The WEstjustice submission outlined a number of the key facets that characterise 'best practice' education approaches to assist migrant or CALD individuals, including:  verbal, 'face-to-face' information sessions;  use of client's language and client's own community workers;  use of visual and multimedia materials;  utilising English classes and pre-arranged community meetings to disseminate information;  use of clear and simple language;  emphasis on key information and messages;  cultural awareness;  convenient locations to facilitate attendance at information sessions;

5 FECCA, Submission 10, p. 4.

6 FECCA, Submission 10, p. 5.

7 FECCA, Submission 10, p. 2.

8 WEstjustice Community Legal Centre, Submission 20, p. 34.

 practical and timely advice; and  approaches developed in consultation with communities.9 7.10 Ms Catherine Hemingway, Policy Director for CALD and Employment at WEstjustice informed the committee of the success it had achieved with its programs aimed at CALD workers, such as the 'Train the Trainer' program: ACTING CHAIR [Senator Brockman]: Has that [Train the Trainer program] improved awareness in communities as to their rights and their ability to access processes? Ms Hemingway: Yes. We've done a lot of evaluation of all of our programs but especially the Train the Trainer, and, from that, I can tell you the answer to that question is yes. For the Train the Trainer program, we collected a lot of feedback from the individual trainers—the community leaders—themselves. They gave a lot of feedback about their increased knowledge. But we also evaluated the forms we got back from all of the community members who attended the sessions that our trainers ran. Just by way of background, it's a 10-day training program. The community leaders come along and learn about their rights and responsibilities at work, but we also visit key agencies. We go to the Fair Work Ombudsman and the Fair Work Commission, and those leaders have a chance to see face to face how these services work. The aim is to then have those leaders out in the communities, referring their members into relevant services that can assist. And those trainers then go out and deliver face-to-face information sessions for their communities. I might not have the statistic exactly right, but I think around 80 per cent of participants who went to those information sessions then said at the end that they would know where to go for help if they had a problem and that their knowledge had increased dramatically.10 7.11 WEstjustice recommended that the Government fund targeted education programs for vulnerable workers: WEstjustice proposes that mainstream agencies develop their own targeted resources and programs, but also provide funding for community organisations to distribute those resources and design and deliver essential face-to-face information sessions that align with local community needs.11

Committee view 7.12 Based on the evidence received during the inquiry, the committee sees an urgent need to support outreach measures designed to assist CALD individuals and migrant workers across Australian workplaces, not just in the cleaning sector. The committee considers that such outreach and awareness measures are one part of a solution to minimise the harm to vulnerable

9 WEstjustice Community Legal Centre, Submission 20, pp. 34–35.

10 Ms Catherine Hemingway, Policy Director, CALD and Employment, and Employment Practice Manager, WEstjustice Community Legal Centre, Proof Committee Hansard, 14 September 2018, p. 4.

11 WEstjustice Community Legal Centre, Submission 20, p. 38.

workers by helping workers to better navigate the workplace relations system and seek assistance should they fall victim to non-compliant behaviour. 7.13 The committee commends the FWO on its efforts in engaging with CALD communities, particularly in regard to the provision of information in accessible formats for these groups. It encourages the FWO to continue these efforts to ensure that vulnerable workers are able to access the tailored assistance they require. Additionally, the committee urges the Government to continue to support the FWO in this mission through adequate funding and resources. 7.14 The committee also commends not-for-profit, non-government organisations on the programs they run to assist vulnerable workers from CALD backgrounds. The committee considers the success of programs (such as 'Train the Trainer' developed by WEstjustice) sufficient to warrant government support. 7.15 The committee also acknowledges the work done by community legal centres, such as inquiry submitters WEstjustice, JobWatch and the Employment Law Centre of Western Australia. The committee recognises the value in the work done by these organisations in engaging in community legal education and providing one-on-one assistance and advice to vulnerable workers. 7.16 To that end, the committee urges the Government to utilise the knowledge gleaned from the valuable work of such organisations and fund targeted education programs and community legal programs that have a proven success in assisting migrant and CALD workers to navigate the Australian workplace relations system.

Recommendation 18 7.19 The committee recommends that the Government fund not-for-profit community legal centres to enable such organisations to expand their work

in community legal education and provide tailored assistance to vulnerable workers experiencing exploitation.

Protections for visa holders 7.20 Another issue raised with the committee was the concerns of temporary workers about the immigration consequences they may face should they report the exploitative behaviour of their employer. 7.21 Ms Bassina Farbenblum, Senior Lecturer at the University of New South Wales, and Dr Laurie Berg, Senior Lecturer at the University of Technology Sydney, provided the committee with an overview of data collected as part of the National Temporary Migrant Work Survey. Published in November 2017, it was the most comprehensive study to date into wage theft and working conditions among international students, backpackers and other temporary migrant to Australia.12 The survey, conducted online between September and December 2016, amassed 4322 responses from temporary migrant workers representing 107 nationalities and working in jobs across all states and territories.13 7.22 Based on the findings from this data, Ms Farbenblum and Dr Berg advised the committee that although some migrant workers (for example, international students) are aware of their underpayment, they may choose to accept it due to concerns about their visa status, particularly if they are paid cash in hand.14 7.23 Following on from their submission, in an October 2018 report entitled 'Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia' (Wage Theft in Silence report), Ms Farbenblum and Dr Berg confirmed that while the majority of migrant workers are paid well below the minimum wage, only a few choose to take action to recoup the wages they are owed.15 7.24 In order to overcome the barrier to wage recovery posed by fears of immigration consequences, the Wage Theft in Silence report recommended the establishment of a 'firewall' between the FWO and the Department of Home Affairs (DHA) that prevented the FWO sharing information about visa breaches by migrant workers who seek assistance:

12 Ms Bassina Farbenblum and Dr Laurie Berg, Submission 21, p. 1.

13 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, https://static1.squarespace.com/static/593f6d9fe4fcb5c458624206/t/5bd26f620d9297e70989b27a/1540 517748798/Wage+theft+in+Silence+Report.pdf (accessed 29 October 2018), p. 10.

14 Ms Bassina Farbenblum and Dr Laurie Berg, Submission 21, p. 3.

15 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, p. 5. Note: this matter and other findings from the report are further discussed later in this chapter.

A quarter of participants [in the study] indicated they had not or would not try to recover unpaid wages due to fear of possible immigration consequences (25%). A further 7% of participants identified a general concern about engaging with the government. To reduce this barrier a legislated firewall should be established between the FWO and the Department of Home Affairs. This must prevent the FWO from sharing with the Department of Home Affairs any information relating to contravention of a migrant worker’s visa when the individual reports or seeks assistance in relation to a breach of his or her labour rights. This should replace the current protocol between the two agencies which still allows sharing of this information.16 7.25 WEstjustice highlighted that the current protocol between the FWO and the DHA was not sufficient to allay the fear of immigration consequences that stopped temporary workers from reporting their exploitation: The Australian Government’s Migrant Worker Taskforce announced in February 2017 that where temporary visa holders with a work entitlement attached to their visa may have been exploited and they have reported their circumstances to the FWO, the Department of Home Affairs (DHA) will generally not cancel a visa, detain or remove those individuals from Australia, providing: the visa holder commits to abiding by visa conditions in the future; and there is no other basis for visa cancellation (such as on national security, character, health or fraud grounds). This agreement between DHA and FWO has now been published on FWO’s website17, and will hopefully be widely communicated by the government. While this is a positive development, alone it will not be sufficient to reassure vulnerable migrant workers on temporary visas that it is safe to come forward and report exploitation to the FWO without further legislative and other reform.18 7.26 WEstjustice confirmed that such fears were genuinely held by temporary workers in the cleaning industry: We have had numerous clients in the cleaning industry visit our service to request help for significant underpayment issues and other unlawful treatment. However, some clients may have breached a term of their visa, inadvertently or accidentally. This breach gives rise to the risk of being removed, that is forced to depart Australia. As a result, clients do not pursue their claims and employers take advantage. For example, international students are generally only permitted to work a maximum of 40 hours per fortnight during semester. If they are found to breach a term of their visa (for example, by working for one extra hour), their visa may be cancelled and the worker commits a

16 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, p. 44. Note: Ms Farbenblum and Dr Berg made a similar recommendation in their written inquiry submission.

17 See Fair Work Ombudsman, Visa holders and migrants, www.fairwork.gov.au/find-help-for/visa- holders-and-migrants (accessed 29 October 2018).

18 WEstjustice Community Legal Centre, Submission 20, p. 26 (citations omitted).

strict liability offence. We saw a client who worked for one extra hour in breach of his 40 hour limit, on one occasion. However, the risk of visa cancellation was still real—and he did not pursue his employer, who owed him thousands of dollars.19 7.27 The committee received information on the operation of the 'assurance protocol' between the FWO and DHA. Mr Tom O'Shea, Executive Director of Strategic Engagement and Stakeholder Relations for the FWO outlined: Essentially, it provides a degree of comfort to a vulnerable visa holder who wants to approach the Fair Work Ombudsman to make allegations of exploitation. In the instances where they have also breached their visa requirements, we undertake, on their behalf, to speak to the Department of Home Affairs. The arrangements of the protocol are that Home Affairs, in certain instances, will give an undertaking not to cancel their visa provided that that worker is assisting us with the progress of an investigation or an assessment of their complaint. That's been very successful.20 7.28 The FWO further advised that as at 30 June 2018 it had referred 35 matters to DHA pursuant to the agencies' joint assurance protocol.21 DHA confirmed that of those 35 matters, no migrant worker referred to it had been removed from the country.22

Committee view 7.29 The committee notes the evidence indicating that fear of immigration consequences, for even minor visa breaches, is a factor stopping vulnerable, temporary workers from seeking help from the FWO when they are mistreated by their employer. 7.30 Although the current protocol between the FWO and the DHA is a positive first step, the committee sees the need for a firmer guarantee between the two agencies to provide a greater degree of certainty to temporary workers who are too frightened to come forward about their exploitation, particularly if they have only committed a minor infringement to their visa conditions. 7.31 On this matter, the committee is aware of a March 2018 public statement from Professor Allan Fels, Chair of the Government's Migrant Workers' Taskforce,

19 WEstjustice Community Legal Centre, Submission 20, p. 26.

20 Mr Tom O'Shea, Executive Director, Strategic Engagement and Stakeholder Relations, Fair Work Ombudsman, Proof Committee Hansard, 14 September 2018, p. 62.

21 Fair Work Ombudsman, answers to questions on notice, 14 September 2018 (received 3 October 2018), p. 2.

22 Ms Tara Cavanagh, Acting First Assistant Secretary, Immigration and Visa Services Division, Department of Home Affairs, Proof Committee Hansard, 14 September 2018, p. 62.

that indicated that the FWO and the DHA had agreed to review the protocol given it had been in operation for 12 months.23

Findings from the Wage Theft in Silence report 7.33 As noted above, the Wage Theft in Silence report, authored by Ms Farbenblum and Dr Berg, was released in October 2018. The report is based on data collected from the National Temporary Migrant Work Survey. Other research conducted for the report included 6 focus groups with 26 temporary migrant workers in Sydney, Melbourne and Brisbane, and 39 semi-structured long form interviews with government agency officials, legal service providers, advocates, trade unions, researchers and individual temporary migrant workers, conducted between November 2015 and February 2017.24 7.34 Key findings from the Wage Theft In Silence report included:  Among international students and backpackers who acknowledged they had been underpaid in Australia, the overwhelming majority suffered wage theft in silence. Fewer than one in ten took action to recover wages they were owed.  Of the small number who tried to recover wages, two in three recovered nothing. Fewer than one in six received the full amount they were owed.  Only 3 per cent of underpaid participants contacted the Fair Work Ombudsman and well over half of them recovered none of their unpaid wages.  Though it is often assumed that most underpaid migrant workers are not interested or willing to take action to get the wages they are owed, in fact well over half of survey participants indicated that they were open to trying to recover their wages. This suggests that if resources are devoted to interventions that better enable migrant workers to report and address underpayment, many more would do so.  It is commonly assumed that migrant workers won’t report underpayment because they are unfamiliar with the different legal

23 Migrant Workers' Taskforce, Chair's Public Statement March 2018 meeting – Professor Allan Fels AO, www.jobs.gov.au/chair-s-public-statement-march-2018-meeting (accessed 29 October 2018).

24 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, (accessed 29 October 2018), p. 12.

culture in Australia. In fact, Asian participants were the most open to trying to recover their wages.  Participants selected a range of rational reasons why they had not sought to address their underpayment: a quarter indicated fear of possible immigration consequences, close to a half reported that they did not know what to do, and many believed they would not be successful.25 7.35 In regard to these last two points, the report elucidated that a 'straightforward cost-benefit theory' explained why so few temporary migrant workers attempted to recover unpaid wages: It is often assumed that migrant workers are reluctant to complain to authorities or attempt to recover unpaid wages due to their personal limitations: poor English language ability, lack of knowledge of rights and/or lack of familiarity with Western legal culture. The survey data paints a different picture. It indicates that a straightforward cost-benefit theory better explains why so few temporary migrant workers try to recover unpaid wages. That is, when the low likelihood and quantum of a successful outcome are weighed against the time, effort, costs and risks to immigration and/or employment status, it is rational that individual temporary migrant workers are not seeking remedies even if they are being significantly underpaid. It also identifies barriers created by a lack of knowledge and capacity that are more connected with the institutions themselves than personal limitations of migrant workers.26 7.36 The report detailed that of the 2258 study participants who acknowledged they had been underpaid, 91 per cent had not tried to recover their unpaid wages (see Figure 7.1).

25 Migrant Worker Justice Initiative, 'Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia', Media release, 28 October 2018, www.mwji.org/highlights/wage- theft-in-silence (accessed 29 October 2018).

26 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, (accessed 29 October 2018), p. 5 (emphasis added).

Figure 7.1—Underpaid participants who had tried to recover wages, planned to recover, might try in the future or would not try

Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, p. 20.

7.37 The report also contained findings on the outcomes for migrant workers who did try to recover their unpaid wages. For example, of the 194 participants in the study who had tried to recover wages, 67 per cent recovered nothing.27 7.38 The report also found that the FWO is not well placed to undertake 'the large-scale provision of individual remedies' that would assist migrant workers in recouping their unpaid wages: …the agency [the FWO] has made significant efforts to address exploitative practices at a systemic level, including numerous high profile campaigns and inquiries. However, the FWO’s core functions are not directed to the large-scale provision of individual remedies. Rather, they are oriented to strategic enforcement, systemic deterrence of noncompliance, and the promotion of harmonious workplaces.28 7.39 The report noted that the FWO places a strong emphasis on enabling 'self-help', but that 'for most migrant workers, preserving employment relationships and self-help are ill-suited to the context of their low wage employment.'29

27 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, (accessed 29 October 2018), p. 30.

28 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, (accessed 29 October 2018), p. 15.

29 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, (accessed 29 October 2018), p. 15.

7.40 As a consequence the Wage Theft In Silence report results show that only 42 per cent of the individuals that sought the FWO's assistance recovered some or all their unpaid wages.30 7.41 Figure 7.2 demonstrates that of the 194 individuals that attempted to recover wages, those that contacted trade unions and community organisations were much more successful in recovering unpaid wages compared to the FWO figures. The comparative figure for those that contacted trade unions was 70 per cent, whereas the community groups were slightly lower at 67 per cent.

Figure 7.2—Proportion of wages recovered by participants who sought assistance to recover wages, by organisation contacted

Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia p. 30.

7.42 Notably, not only were those that contacted trade unions more successful overall, they were also more likely to recover all their unpaid wages compared to any other organisation type.31 This matter is discussed further in the following section of this chapter.

30 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, (accessed 29 October 2018), p. 30.

31 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, (accessed 29 October 2018), p. 30.

Committee view 7.43 The committee commends Ms Farbenblum and Dr Berg on the 'Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia' report. The committee considers it to be a comprehensive piece of research that would be of use in formulating effective policy responses to the problems faced by vulnerable workers, such as those in the cleaning industry. 7.44 The committee encourages the Government, in particular agencies such as the FWO and the Australian Taxation Office, to evaluate the findings and recommendations the report contains.

Recommendation 20 7.45 The committee recommends the Government consider the findings and recommendations made in the 'Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia' report in conjunction with its consideration of the forthcoming report of the Migrant Workers' Taskforce. 7.46 Additionally, the committee believes that provided adequate resources were available, the FWO could play a more active and expansive role in recovery of unpaid wages. Clearly individual vulnerable workers are currently making a rational assessment that the existing avenues for recourse through the FWO are limited. Therefore the committee believes that additional funding should be provided to the FWO to play a greater role in this area. Given the strong recovery results achieved by both trade unions and community groups, the FWO should seek opportunities to collaborate with these other organisations in order to maximise the recovery of unpaid wages.

Role of unions in protecting vulnerable workers 7.48 The committee received evidence illustrating the vital role of trade unions in protecting and assisting vulnerable worked. 7.49 Some submitters argued that the exploitation of workers in the cleaning industry, as well as across Australian workplaces more generally, has been facilitated due to the gradual erosion of union rights. 7.50 For example, the Australian Council of Trade Unions (ACTU) listed the following as union rights that needed to be restored in order to effectively represent vulnerable workers:  positive organising rights;

 prohibitions on the intimidation and harassment of union members;  provision of union information to new workers;  recognition and protection of union delegate training;  bargaining in good faith requirements; and  extending freedom of association rights to contractors.32 7.51 United Voice, the union which represents workers in the cleaning industry, claimed that it had faced restrictions on the right of entry to workplaces since 2004.33 It argued for the restoration of union rights in order to assist in stamping out worker exploitation: Restoring freedom of association for all workers in Australia is integral to eliminating worker exploitation. To be clear, exploitation occurs because of workers’ voice has been diminished and their rights to organise and advocate through their union for improvements to living standards and workplace rights have been under persistent attack.34 7.52 Maurice Blackburn Lawyers (Maurice Blackburn) submitted that wage theft and worker exploitation is 'always lowest' in workplaces with the highest union membership. It did note, however, that there were characteristics of the cleaning industry (e.g. highly casualised workforce, off-site and single-worker nature of the work) that made connections with unions difficult.35 7.53 United Voice reiterated these points, noting that the causes of low union density in retail cleaning were 'multiple and mutually reinforcing': There are factors associated with the industry (the fact that many employers are small in size, that workplaces are isolated and that there are high levels of worker turnover and casual employment), the attitudes of particular employers (some of whom intimidate workers into not joining a union), additional worker vulnerabilities that exist because of the high proportion of temporary migrant workers in the industry, and disincentives to unionism created by the IR framework itself, which restricts union access and enables non-union members to ‘free ride’ the benefits of union services without joining.36 7.54 Ms Lyndal Ryan, Secretary of the Australian Capital Territory branch of United Voice, provided an example of the difficulties inherent in unions utilising the right of entry provisions in the Fair Work Act to meet with cleaners, due to the nature of the industry: There are a few things in terms of right of entry, and we've had some thoughts about this. If you take any Commonwealth building in Canberra where this [cleaning] work is done, you'll find it's secured in the evening

32 Australian Council of Trade Unions, Submission 11, p. 5.

33 United Voice, Submission 9, p. 5.

34 United Voice, Submission 9, p. 29

35 Maurice Blackburn Lawyers, Submission 4, p. 6.

36 United Voice, Submission 9, p. 4.

and in the early hours of the morning, which is the other time the work could be done. You have to find out when the work is being done, determine who the employer might be, give that notice—if you can find the employer—and then work out arrangements for accessing that building. The other difficulty under the Fair Work Act as it's currently drafted is that we can talk to people in their meal breaks, but cleaners working at night of course have no staff room of their own and their shift length is generally such that they don't actually have a meal break. There's no end of problems with the access requirement in the Fair Work Act, and 24 hours' notice is just one; finding the employer to give the notice to will be your first challenge.37 7.55 United Voice further argued that unions were crucial to augmenting the work of the FWO: Unions create a culture of compliance, where workers themselves are responsible for ensuring their workplace complies with the law, rather than relying on the surveillance of FWO, which can never reach the majority of workplaces.38 7.56 As outlined in the previous section, the committee received evidence demonstrating that trade unions were beneficial in assisting migrant workers in recovering unpaid wages. The Wage Theft in Silence report found that workers that contacted a trade union for assistance to recover unpaid wages had the best outcomes. For example, of the participants in the study that attempted to recover wages, of those who went to a trade union, 30 per cent recovered all of their wages, and 40 per cent recovered some of their wages.39 7.57 The report also found that trade union membership was a distinguishing factor of those underpaid participants that had attempted to recover their wages: Among those who had been a member of a trade union in Australia at some point, 28% of underpaid participants had tried or were planning to recover their wages, compared with 10% of underpaid participants who had never been a member of a trade union.40 7.58 However, the report noted that migrant workers are 'generally unlikely' to proactively seek trade union assistance.41

37 Ms Lyndal Ryan, Secretary, Australian Capital Territory Branch, United Voice, Proof Committee Hansard, 14 September 2018, p. 13.

38 United Voice, Submission 9, p. 23.

39 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, p. 30. See also Figure 7.2 in this report.

40 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, p. 6.

41 Ms Bassina Farbenblum and Dr Laurie Berg, Wage Theft in Silence: Why Migrant Workers Do Not Recover Their Unpaid Wages in Australia, 29 October 2018, p. 14.

Committee view 7.59 The committee is of the strong opinion that unions have a crucial role to play not only in assisting vulnerable workers who have been the victim of non- compliant behaviour by employers, but also in protecting workers from being exploited in the first place. 7.60 As a result, the committee sees the need for the Fair Work Act to ensure that workers in the cleaning industry are able to access their union with the same ease as workers in other sector.

Senator Gavin Marshall Senator Catryna Bilyk Chair Member

Senator Deborah O'Neill Senator Mehreen Faruqi Member Member

Senator the Hon Doug Cameron Participating Member

Coalition Senators' Dissenting Report

1.1 Coalition members of the Committee cannot agree with the recommendations of the majority report, which represent significant overreach based on the evidence presented and contrary evidence to the operation of the current legal and institutional framework of workplace law. 1.2 Coalition Senators have no tolerance for any employers failing to meet their obligations to employees under workplace laws. All employers should do the right thing and ensure their employees receive their full entitlements. 1.3 As evidence made clear, the Fair Work Act 2009 (the Fair Work Act) contains serious offences with heavy penalties that outlaw underpayment and other breaches of workplace laws. All national system employers must act in accordance with the requirements of the Fair Work Act. 1.4 Australia has the most comprehensive safety net of employee protections and one of the highest minimum wage rates in the world. 1.5 All employers covered by the Fair Work Act must the meet the requirements of that safety net, including providing pay and benefits to employees in accordance with the minimum wage, the National Employment Standards and modern awards. Further, employers must meet the requirements of any relevant Enterprise Agreement. 1.6 The vast majority of employers do the right thing and pay their employees in accordance with workplace laws. However, a minority of employers do not provide employees with their full entitlements. In some instances this is due to lack of knowledge or administrative error on the part of the employer. However, in some cases breaches are a result of deliberate attempts to underpay or exploit workers. 1.7 The Fair Work Ombudsman (FWO) has a key role to play as the appropriate regulator responsible for investigating breaches of the Fair Work Act, recovering underpayments, ensuring breaches do not persist and initiating action against employers who do the wrong thing, where appropriate. 1.8 It is on this basis that the FWO initiated its investigation into the treatment of cleaners engaged at Woolworths, Coles and IGA sites in Tasmania. That investigation and subsequent February 2018 report titled ‘An inquiry into the procurement of cleaners in Tasmanian Supermarkets’ identified underpayment of cleaners and other breaches of workplace laws at a significant proportion of Woolworths sites. 1.9 As evidence to the inquiry demonstrated, the FWO has taken appropriate steps to initiate recovery of entitlements and has subsequently had Woolworths enter a Deed under which they will be required to take responsibility for any

outstanding entitlements and ensure their cleaning contractors adopt appropriate employment practices into the future. 1.10 Coalition Senators note successive ministers have expressed that the Government has no tolerance for underpayment of workers or exploitation of any kind and acknowledge that underpayment of vulnerable workers in industries such as cleaning has been a problem over a significant period of time, under successive governments. 1.11 Coalition Senators note that it was on the basis of these concerns that the Coalition Government has already taken comprehensive action to address exploitation of vulnerable workers, in particular through the introduction of the Protection of Vulnerable Workers legislation in 2017. 1.12 That legislation fulfilled an election promise to introduce a comprehensive package to improve protections for vulnerable workers. 1.13 That package included:  an increase in penalties up to ten fold for series breaches of workplace laws;  an increase in investigative powers for the FWO, including the ability to compel witnesses to provide evidence; and  new obligations for franchisors to take accountability for entitlements of the employees of their franchisees.1 1.14 The full benefit of these measures in combatting exploitation of vulnerable workers is now starting to take effect. The first decisions under the new penalty regime are expected to be handed down by the courts shortly. 1.15 Further, the Government has provided an additional $20.1 million in funding for the FWO to dedicate to protecting and supporting vulnerable workers.2 1.16 The FWO has also developed tools and strategies to assist migrant workers, particularly those with low levels of English, including providing information in 40 different languages to assist vulnerable workers.3 1.17 The FWO has undertaken significant compliance work in the cleaning industry, including filing 15 litigations between July 2013 and June 2018, resulting in the ordering of over $1.6 million in penalties.4 1.18 In addition, the Government established the Migrant Workers' Taskforce, chaired by Professor Allan Fels AO, to make further recommendations on how

1 Department of Jobs and Small Business, Submission 7, p. 6.

2 Department of Jobs and Small Business, Submission 7, p. 5.

3 Fair Work Ombudsman, Annual Report 2017-18, www.fairwork.gov.au/annual-reports/annual- report-2017-18/02-fwo-performance-report/online-services (accessed 13 November 2018).

4 Fair Work Ombudsman, Submission 14, p. 2.

protections for vulnerable workers can be strengthened. Coalition Senators note the taskforce is due to report to the Government in November. 1.19 There is no disagreement about the need for compliance. This is a serious issue that warrants a determined and substantial response. It is not an issue that anyone should be playing politics with. 1.20 It is therefore disappointing that the Labor Senators constituted this inquiry as a political exercise. 1.21 Labor Senators arranged hearings to be convened in the electorates of Longman and Braddon, just ahead of by-elections in those seats. 1.22 There was no legitimate explanation for hearings being held in Caboolture on 19 July 2018 or in Devonport on 25 July 2018. The hearings demonstrate this underlying motivation for the inquiry. 1.23 The FWO had already completed an extensive investigation into the issues raised and determined the action required to address the matter. 1.24 Labor seems determined to undermine the work of the FWO. Last time they were in government, Labor cut funding and resources to the FWO. They seemingly believe that the powers that are rightly vested with the balanced and objective regulator, the FWO, should be transferred to the union movement. 1.25 It has therefore fallen to the Coalition Government to take action to protect vulnerable workers by adopting the comprehensive measures outlined above, including boosting the resources and powers of independent regulators. This stands in stark contrast to the inaction of the last Labor Government. 1.26 Reference has been made during the inquiry to arrangements entered into by Commonwealth Government departments with Broadspectrum for the provision of cleaning services in departmental buildings. The deed under which the services are provided makes clear that Broadspectrum is responsible for due diligence in relation to its subcontractors and ensuring that they comply with all laws, including the Fair Work Act. As was stated in evidence by relevant departments and Broadspectrum during the inquiry, cleaners performing work in departmental buildings are receiving their full entitlements under the relevant modern award and are paid at rates higher than that prescribed in the award.5 1.27 Coalition Senators uphold the right of all organisations to contract for services. The ability to enter into contractual arrangements with other companies is an

5 See for example Ms Marianne Suchanek, Group Risk and Compliance Counsel, Legal and Governance Group, Broadspectrum, Proof Committee Hansard, 18 October 2018, p. 4; Mr Andrew Jaggers, Acting Deputy Secretary, Department of Finance, Proof Committee Hansard, 18 October 2018, p. 8.

essential and enduring part of our economy. A significant body of law and precedent exists around the importance of contractual arrangements. Freedom to contract, whilst not unfettered, is an essential characteristic of our economic system that should be preserved. The provision of specialist services on a contracted basis is integral to growth and the creation of jobs in the contemporary Australian economy. 1.28 Coalition Senators believe that the Government has taken proactive and comprehensive action to strengthen protections for vulnerable workers and that the recommendations of the Migrant Workers' Taskforce should be considered when determining any further reforms to enhance these protections. 1.29 It is on this basis that Coalition Senators cannot support the majority report.

Senator Slade Brockman Senator Jim Molan Deputy Chair Substitute Member

Appendix 1 Submissions and additional information

Submissions 1 National Retail Association 2 Building Service Contractors Association of Australia Limited 3 Centre for Business and Social Innovation, University of Technology Sydney 4 Maurice Blackburn Lawyers 5 Woolworths Group  5.1 supplementary submission 6 Queensland Council of Unions 7 Department of Jobs and Small Business 8 Professor Andrew Stewart and Dr Tess Hardy 9 United Voice 10 Federation of Ethnic Communities' Councils of Australia 11 Australian Council of Trade Unions 12 JobWatch 13 Employment Law Centre of WA 14 Fair Work Ombudsman 15 Cleaning Accountability Framework 16 Law Council of Australia 17 Australian Industry Group 18 Australian Retailers Association 19 Retail and Fast Food Workers Union Incorporated 20 WEstjustice Community Legal Centre 21 Dr Laurie Berg and Ms Bassina Farbenblum 22 Mr Robert Vertigan

Additional Information 1 Woolworths Group Cleaning Services Proactive Compliance Deed; received from the Fair Work Ombudsman on 29 August 2018. 2 Media release relating to the Woolworths Group Cleaning Services Proactive Compliance Deed; received from the Fair Work Ombudsman on 29 August 2018. 3 Additional information relating to evidence given at a public hearing in Melbourne on 4 September 2018; received from Dr Sarah Kaine on 5 September 2018. 4 Additional information relating to evidence given at a public hearing in Canberra on 14 September 2018; received from WEstjustice Community Legal Centre on 19 September 2018.

5 Letter of clarification relating to evidence given at a public hearing in Melbourne on 4 September 2018; received from Woolworths Group on 15 October 2018. 6 Letter of clarification relating to evidence given at a public hearing in Canberra on 14 September 2018; received from the Australian Taxation Office on 19 October 2018. 7 Letter of clarification relating to evidence given at a public hearing in Canberra on 14 September 2018; received from Woolworths Group on 23 October 2018. 8 Public interest immunity claim; received from Senator the Hon Mathias Cormann, Minister for Finance and the Public Service on behalf of the Commonwealth Government on 9 November 2018. 9 Correspondence; received from Ms Ashleigh Wallace on 12 November 2018.

Answer to Question on Notice 1 Answers to questions on notice by Professor Andrew Stewart and Dr Tess Hardy. Asked at public hearings in Caboolture on 19 July 2018 and Devonport on 25 July 2018; received 8 August 2018. 2 Answers to questions on notice by the Queensland Council of Unions. Asked by Senator Hume at a public hearing in Caboolture on 19 July 2018; received 14 August 2018. 3 Answers to questions on notice by United Voice. Asked by Senator Hume and Senator Abetz at a public hearing in Caboolture on 19 July 2018; received 16 August 2018. 4 Answers to questions on notice by Woolworths Group. Asked by Senators at a public hearing in Devonport on 25 July 2018; received 22 August 2018. 5 Answers to questions on notice by Coles. Asked by Senators Abetz, Bilyk and O'Neill at a public hearing in Devonport on 25 July 2018; received 24 August 2018. 6 Answers to questions on notice by the Fair Work Ombudsman. Asked by Senators Cameron and Abetz at a public hearing in Devonport on 25 July 2018; received 27 August 2018. 7 Answers to questions on notice by Total Focus Concepts. Asked by Senator Cameron at a public hearing in Melbourne on 4 September 2018; received 11 September 2018. 8 Answers to questions on notice by Jae My Holdings. Asked by Senator Cameron at a public hearing in Melbourne on 4 September 2018; received 13 September 2018. 9 Answers to written questions on notice by the Fair Work Ombudsman. Asked by Senator Cameron on 4 September 2018; received 13 September 2018. 10 Answers to questions on notice by Woolworths Group. Asked at a public hearing in Melbourne on 4 September 2018; received 13 September 2018.

11 Answers to questions on notice by ASCC Pty Ltd. Asked by Senator Cameron at a public hearing in Melbourne on 4 September 2018; received 13 September 2018. 12 Answers to questions on notice by United Voice and Maurice Blackburn Lawyers. Asked at a public hearing on Melbourne on 4 September 2018; received 25 September 2018. 13 Answer to a question on notice by the Fair Work Ombudsman. Asked at a public hearing in Canberra on 14 September 2018; received 3 October 2018. 14 Answer to written questions on notice by Coles. Asked on 13 September 2018; received 5 October 2018. 15 Answers to questions on notice by the Australian Taxation Office. Asked at a public hearing in Canberra on 14 September 2018; received 10 October 2018. 16 Answers to questions on notice by the National Retail Association. Asked at a public hearing in Canberra on 14 September 2018; received 10 October 2018. 17 Answer to a question on notice by Woolworths Group. Asked at a public hearing in Canberra on 14 September 2018; received 11 October 2018. 18 Answers to written questions on notice by Woolworths Group. Asked on 9 October 2018; received 23 October 2018. 19 Answers to questions on notice by Broadspectrum. Asked at a public hearing in Canberra on 18 October 2018; received 29 October 2018. 20 Answers to questions on notice by the Department of Finance. Asked at a public hearing in Canberra on 18 October 2018; received 29 October 2018. 21 Answers to questions on notice by PrompCorp. Asked by Senator Cameron at a public hearing in Canberra on 18 October 2018; received 1 November 2018. 22 Answers to questions on notice by Broadspectrum. Asked at a public hearing in Canberra on 18 October 2018; received 5 November 2018. 23 Answers to questions on notice by the Department of Finance. Asked by Senator Cameron on 31 October 2018; received 9 November 2018.

Tabled Documents 1 Opening statement and timeline of compliance-related activities for the Fair Work Ombudsman; tabled at a public hearing in Devonport on 25 July 2018 by Woolworths Group. 2 Two statements from cleaners; tabled at a public hearing in Canberra on 14 September 2018 by United Voice.

Appendix 2 Public hearings and witnesses

Thursday, 19 July 2018 Seminar Room Caboolture Hub 4 Hasking Street Caboolture

United Voice  Mr Damien Davie, Coordinator

Professor Andrew Stewart, private capacity

JobWatch  Mr Ian Scott, Principal Lawyer  Mr John O'Hagan, Lawyer

Queensland Council of Unions  Dr John Martin, Research and Policy Officer

Wednesday, 25 July 2018 Sinatra's Room Quality Hotel Gateway Inn 16 Fenton Street Devonport

Fair Work Ombudsman  Ms Sandra Parker, Fair Work Ombudsman  Mr Michael Campbell, Deputy Fair Work Ombudsman - Operations  Ms Lynda McAlaray-Smith, Executive Director – Compliance & Enforcement  Mr Steven Ronson, Executive Director - Communications

Woolworths Group  Mr Trent Mason, General Manager, Facilities Management  Mr Andrew Howarth, Compliance Manager, Facilities Management  Mr Cameron Sinclair, Public Policy Manager, Government Relations

Dr Tess Hardy, private capacity

Coles  Ms Vittoria Bon, Government and Industry Relations Manager, Corporate Affairs 89

United Voice  Ms Sarah Ellis, Lead Organiser  Ms Frances Flanagan, Research Director  Ms Wendy Hand, Member

Master Grocers Australia  Mr Jos de Bruin, Chief Executive Officer  Mr Grant Hinchcliffe, Director

Tuesday, 4 September 2018 Balmoral Room Stamford Plaza 111 Little Collins Street Melbourne

Professor Allan Fels AO, private capacity and Chair of the Migrant Workers' Taskforce

United Voice  Mr Jack Kenchington-Evans, Industrial Officer, Victorian Branch  Mr Arthur Tsimopoulos, Retail Cleaner, South Australian Branch

Maurice Blackburn Lawyers  Mr Josh Bornstein, Principal Lawyer

Building Service Contractors Association of Australia Limited  Mr George Stamas, National President

Centre for Business and Social Innovation, University of Technology Sydney  Dr Sarah Kaine

Centre for Business and Social Innovation, University of Technology Sydney  Dr Martijn Boersma

Woolworths Group  Mr Christian Bennett, Head of Government Relations  Ms Hayley Baxendale, Head of Workplace Relations  Mr Trent Mason, General Manager, Facilities Management

ASCC Pty Ltd  Mr Deepak Singh, Chief Operating Officer

Total Focus Concepts  Mr Suchin Charan, Owner and Director of Operations  Mr Richard Hughes, General Manager

Jae My Holdings  Ms Susan Lee, Director

Choice FM  Mr Damir Rizvic, National Operations Manager

Just 1 Call  Mr Troy Wilson, General Manager

Friday, 14 September 2018 Committee Room 2S1 Parliament House Canberra

Federation of Ethnic Communities' Councils of Australia  Dr Emma Campbell, Chief Executive Officer  Dr Alia Imtoual, Director of Policy

WEstjustice  Ms Catherine Hemingway, Policy Director (CALD & Employment) Employment Practice Manager

United Voice  Ms Lyndal Ryan, ACT Branch Secretary  Ms Erryn Cresshul, Organiser, ACT Branch

Woolworths Group  Ms Hayley Baxendale, Head of Workplace Relations  Mr Andrew Howarth, Compliance Manager, Facilities Management  Mr Cameron Sinclair, Public Policy Manager

National Retail Association  Ms Dominique Lamb, Chief Executive Officer

Law Council of Australia  Mr Greg Vickery AO, Chair of the Business and Human Rights Committee

Cleaning Accountability Framework  Ms Poonam Datar, Chief Executive Officer  Mr Anthony Beck, Chair

Department of Jobs and Small Business  Mr Peter Cully, Group Manager  Ms Sharon Huender, A/g Branch Manager  Ms Kelly Hoffmeister, Senior Executive Lawyer  Mr Scott Wallace, Chief Technology Officer

Fair Work Ombudsman  Ms Sandra Parker, Fair Work Ombudsman  Mr Michael Campbell, Deputy Fair Work Ombudsman - Operations  Mr Tom O'Shea, Executive Director Strategic Engagement & Stakeholder Relations  Mr Steven Ronson, Executive Director - Communications

Department of Home Affairs  Ms Tara Cavanagh, A/g First Assistant Secretary, Immigration and Visa Services Division  Ms Justine Jones, A/g First Assistant Secretary, Immigration Integrity and Community Protection Division

Australian Taxation Office  Ms Aislinn Walwyn, Assistant Commissioner, Phoenix  Mr Matthew Bambrick, Assistant Commissioner, Small Business Risk and Strategy

Thursday, 18 October 2018 Committee Room 2S3 Parliament House Canberra

Department of Finance  Mr Andrew Jaggers, A/g Deputy Secretary  Ms Vivianne Johnson, A/g First Assistant Secretary  Ms Elizabeth Hickey, A/g Assistant Secretary

Broadspectrum  Mr Michael Barlow, General Manager, National Operations, Broadspectrum Property  Ms Marianne Suchanek, Group Risk & Compliance Counsel, Legal & Governance Group  Mr Kevin McCafferty, Executive General Manager of Procurement

Jarrah Integrated Services  Mr Chadd Croshaw, Director

PrompCorp  Mr Benjamin McGaw, Chief Executive Officer  Mr George Konstas, Legal Representative

Appendix 3 Speak Up flyer provided by Woolworths Group

Source: Woolworths, answers to questions on notice, 9 October 2018 (received 23 October 2018), pp. 7–9.

Appendix 4 Proposed amendments to the Fair Work Act 2009 by WEstjustice Community Legal Centre

100

101

102

103

104

Source: WEstjustice Community Legal Centre, Submission 20, pp. 48-55.