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LABOUR HIRE AND INSECURE WORK

The need for a new and fairer Victorian framework

November 2015

1/ 2/ Contents

1. Executive Summary ...... 4 2. Submission introduction ...... 6 3. What is ? ...... 7 3.1 Identifying responsibilities ...... 7 3.2 status: Labour hire, casualisation and sham contracting ...... 7 3.3 Phoenix activity in the labour hire industry...... 8 3.4 Labour hire and visas ...... 9 4. Consequences of labour hire and insecure work ...... 11 4.1 Avoiding employee entitlements: Labour hire workers receive a lower hourly rate of pay than comparable direct hire workers...... 11 4.2 Undermining work: Labour hire weakens the pay and working conditions of direct hire workers ...... 12 4.3 The flexibility myth: labour hire workers overwhelmingly would prefer to be employed directly rather than work for a labour hire employer ...... 13 4.4 No opportunities: precarious work does not provide an opportunity for more secure work ...... 15 4.5 The productivity myth: Labour hire workers are least satisfied with their ...... 15 4.6 Poor OHS outcomes: Labour hire employees are more likely to be injured at work ...... 17 5. Current state of regulation in ...... 20 6. Recommendations ...... 22 Recommendation 1: Introduction of a licensing system ...... 22 Recommendation 1.1: Threshold capital requirement ...... 22 Recommendation 1.2: Licensing bond and annual licence fee ...... 23 Recommendation 1.3: Compliance unit ...... 23 Recommendation 1.4: Informing workers of their entitlements or rights ...... 24 Recommendation 2: Establish a statutory maximum period for labour hire assignments with a host organisation...... 24 Recommendation 3: Labour hire firms should be excluded from engaging workers on 417 and 462 Visas ...... 24 Recommendation 4: Requirement to pay employees the market rate ...... 25

3/ 1. Executive Summary

Recent media exposés of the exploitation of cannot discuss pay or safety without risking working people in Victoria’s labour hire industry their jobs. Workers’ stories told of the negative have highlighted the insufficiency of current personal, financial and health impacts of a lack of regulation and its inability to provide protection for predictability at work. Victorian workers. “If you spoke up they move on to the next bloke.” The existing regulation, which predominately “You worry everyday if you can pay rent.” relates to the direct relationship between employers and employees, is inadequate for “If it wasn’t for them [the CFMEU] my children regulating the complicated triangular structure of wouldn’t have even received Xmas presents and we labour hire. Labour hire agencies are undermining wouldn’t have been able to even eat.” Australian working conditions through the “Casual work might suit SOME people, but 99% it increased use of precarious work arrangements doesn’t… [you have] extremely high stress levels such as casualisation and engaging workers under due to the unknown for you and your family, which sham independent contract arrangements, as well in turn creates low self-esteem, depression, anxiety as exploiting vulnerable temporary foreign workers. and feelings of not being good enough to provide There is also a proliferation of labour hire firms for your family.” avoiding paying employee entitlements and tax through phoenix activities. “[I have] no idea if I’m getting money at all week to week... It is not a privilege to have a ! I want to Appalling stories of exploitation from people work, I want secure pay and conditions, why must I working under labour hire agencies in Victoria show feel lucky if I can get that!!!!” that the negative consequences of labour hire and insecure work are real, disturbing and intolerably “If you even question health and safety, the builder common. you are on-site for will call you a trouble maker, phone your employer, and demand not to send you Submissions from people who are faced with back to that job.” precarious work to the CFMEU, including through labour hire agencies, have consistently shown “[I’m] always stressed because safety was ignored that they do not believe they are paid fairly, their and men with my experience are told to shut up or are not always safe and that they get sacked.”

4/ In addition to the stories of workers, research Current conditions experienced by people working demonstrates that; in the labour hire industry in Victoria are inadequate and exploitative. To improve these conditions, • labour hire and casual workers are used in order regulation needs to be implemented and to avoid paying employee entitlements; adequately enforced by the Victorian Government. • people who work under labour hire To reduce the exploitation of workers, the CFMEU arrangements receive lower than the recommends the Victorian Government: comparable permanent people they work • Introduce a licensing system which creates alongside; barriers to entry to reduce the number of • the use of labour hire workers undermines unscrupulous operators operating in Victoria. the pay and working conditions of direct hire This regulation should include (but not be working people; limited to): • the idea that labour hire arrangements provide - A threshold capital requirement; ‘flexibility’ for people is inherently false; - A licensing bond and annual fee; • people who work under labour hire - A compliance unit; arrangements would overwhelmingly prefer to be directly employed; • Establish a statutory maximum period for labour hire assignments with a host • precarious work does not provide opportunities organisation; for secure work; • Exclude labour hire firms from engaging • the use of labour hire workers does not workers on working holiday visas/student visas. necessarily increase productivity, particularly as it undermines long-term skill development and is detrimental to the worker’s motivation; and • Occupational Health and Safety outcomes are considerably worse for people who work for a labour hire agency.

5/ 2. Submission introduction

The Minister for Industrial Relations, the Hon. Natalie Hutchins MP announced in September an inquiry into the labour hire industry and insecure work in Victoria in order to investigate the practices of labour hire companies, insecure work, sham contracting and the abuse of visas to avoid workplace laws and undermine minimum employment standards. As part of the inquiry, on October 16, the Inquiry released a background paper calling for submissions from interested parties. The Construction, Forestry, Mining and Energy Union (CFMEU) is Australia’s main trade union in construction, forestry and furnishing products, mining and energy production. We welcome the opportunity to submit our concerns to the Victorian Department of Economic Development, Jobs, Transport and Resources inquiry into the Labour Hire Industry and Insecure Work. The CFMEU supports the submission of the Victorian Trades Hall Council and refers the inquiry to the additional individual worker stories submitted by the council on behalf of the CFMEU and its members.

6/ 3. What is labour hire?

Labour hire arrangements are a triangular Even the triangular relationship itself is sometimes relationship where workers are hired as either an a simplistic relationship of the employment employee or independent contractor by an agency structures that exist in reality. In some instances, which supplies the worker’s labour to a third party labour hire agencies themselves may further client (the host) for a fee. In this arrangement, there outsource or contract out their labour needs, is no direct between the host creating a multi-tier relationship. and the employee. Whilst the host typically has an 3.2 EMPLOYMENT STATUS: LABOUR HIRE, employer’s capacity to direct the work of labour hire workers, other general employment obligations are CASUALISATION AND SHAM CONTRACTING removed from the host who simply pays a fee to In a traditional employer employee scenario, the labour hire agency. workers can be hired either as permanent There are two types of labour hire arrangements: employees or as casuals. Labour hire has resulted in a more complex set of employment 1) where the worker is an employee of the labour arrangements, where workers are employed by the hire agency; or labour hire agency as either an employee (casual or 2) where the worker is hired under a contract by permanent) or an independent contractor. As such, the labour hire agency where no employment there is an overlap between labour hire and other relationship exists with either the agency or non-standard and precarious forms of employment the host. such as casual work, and contracting. 3.1 IDENTIFYING RESPONSIBILITIES Watson (2005) notes concern not only for the increased use of casual workers in the workforce ‘The problems of labour hire are not just the and the alarming growth of casualisation among product of cowboys in the industry, but are also the full-time workforce but the process of rooted in the triangular nature of labour hire casualisation and the conversion of non-casual arrangements: the fact that workers are paid by work into precarious and casual work. He states this one employer but work for another. Confusion process is linked with the ‘spread of over lines of responsibility … are evident, with and of workers through labour hire serious consequences for workers’ conditions and firms.’ This was consistent with the findings of entitlements.’ the 2004 Inquiry into Labour Hire Employment in – Watson et al., Fragmented Futures: Victoria interim report that found that a recurrent New Challenges in Working Life theme in the evidence was concern regarding the Brennan et al (2003) state that much of the concern high levels of casual employment in the labour hire surrounding labour hire arrangements stems industry and its contribution to the casualisation of from the difficultly in defining relationships and the workforce. responsibilities. This is consistent with the findings Wooden and Warren (2004) state that casual of the 2004 Inquiry into Labour Hire Employment in employment is common among labour hire Victoria interim report that found that a recurrent companies and temporary worker agencies with theme in the evidence was the level of ambiguity such agencies employing approximately 9% of in the relationship between agency, host and all casual employees – Buchanan et al, [2004), worker. It found debate regarding what constitutes and casual workers accounting for over 60% of labour hire as there is so much variation in the all labour hire workers. This is consistent with a bases by which workers are engaged: workers survey conducted by Brennan et al. (2003) which may be hired as employees or independent found 75% of on-hire employees receive casual contractors, employees may then be casual, fixed loadings. The House of Representatives Standing term or ongoing. Workers may work for parts of Committee on Employment, Workplace Relations a host employer that have been partly or entirely and Workforce Participation Inquiry into Labour outsourced to a labour hire company. The report Hire Arrangements and Independent Contracting states that while many employers and employer dissenting report found that the rate of casual groups dispute the argument that responsibilities employment in the labour hire industry was are unclear and that legislation and case law clearly anywhere between 75-95 percent. sets out obligations, it is apparent that this is not the case with the relationship and responsibilities misunderstood by many.

7/ The ABS uses worker entitlements, particularly Successive inquiries have shown that sham entitlement to forms of leave, as a proxy for contracting, including through labour hire agencies, casual status. Based on this methodology, the ABS is a widespread problem throughout Australia suggests that almost 80% of labour hire workers and Victoria. Only a few months ago, a Melbourne are employed on a casual basis. This is considerably labour hire operator Franco Cardamone faced court more than employees generally (labour hire workers for allegedly breaching sham contracting laws. Last were considerably more likely to be without paid month, retail icon Myer was also accused of being holiday or entitlements 79% compared involved with sham contracting. It is particularly with 23%). A greater proportion of labour hire prevalent in the construction industry, as outlined workers were on a fixed-term contract basis (15% by CFMEU’s report ‘Race to the Bottom’, which compared with 3%). found that although it accounts for only 9% of total Australian employment, the construction Buchanan (2004) states that although the industry comprises 33% of all persons working ABS methodology was initially adopted for as independent contractors. Thirty six percent of pragmatic reasons, it reveals the nature of casual all persons working in the construction industry employment: ‘it appears that much of the growth were working as independent contractors. While in these forms of labour are being driven by legitimate contracting arrangements occur, the efforts to redefine workers’ entitlements to labour CFMEU uncovered widespread sham contracting standards rather than to changes in the way by arrangements with the number of sham contracting which labour is engaged in production on a day to arrangements in the construction industry at day basis.’ Consequently, much of the precarious between 92,000 and 168,000 as at November 2010. nature of casual work applies to workers hired under labour hire arrangements. As such, this 3.3 PHOENIX ACTIVITY IN THE submission also considers the implications of LABOUR HIRE INDUSTRY casual work arrangements as it relates to labour hire arrangements. Phoenix activity is the avoidance of paying outstanding debts including employee entitlements, In addition to the use of casual labour, concern has taxes, etc. by a business through the deliberate also been raised about labour hire agencies use liquidation of corporate entities. The Australian of independent contractors and sham contracting Government defines phoenix activity in its most arrangements. Sham contracting occurs where the basic form as involving ‘one corporate entity employer (e.g. the labour hire agency) disguises carrying on a business, accumulating debts an employment relationship as an independent without any intention of repaying those debts (for contracting arrangement in order to avoid their the purpose of wealth creation or to boost the obligations as an employer. cash flow of the business) and liquidating to avoid In a submission to the Standing Committee on repayment of the debt. The business then continues Employment, Workforce Relations and Workforce in another corporate entity, controlled by the same Participation’s 2005 inquiry into independent person or group of individuals.’ contracting and labour hire arrangements, the It is costly on employees as they lose income and Department of Industrial Relations superannuation that is owing to them. In 2012, stated that the use of contract workers in labour PricewaterhouseCoopers (PwC) estimated the total hire arrangements is a complicating factor into impact of phoenix activity is up to $3.19 billion any investigation of labour hire and that it had each year, including up to $655 million in costs to ‘grave concerns’ for the use of sham contract employees. Phoenix activity has been highlighted arrangements to hide a genuine employment as a significant issue in the labour hire industry relationship. They stated that in the 1980s a (PWC, 2012). Typically, the fraudulent labour hire number of companies began to engage workers as phoenix arrangement will be structured as follows: contractors rather than employees with the aim of avoiding responsibility for employee entitlements • a private group is set up consisting of several such as leave, superannuation, workers entities including a labour hire entity; compensation, etc. The Department estimates that • the labour hire entity typically has a single around 20% to 25% of all labour hire workers are director who is not the ultimate ‘controller’ of engaged as contractors. the group;

8/ • the labour hire entity has few, if any, assets and minimal share capital; • the labour hire entity fails to meet its liabilities and is placed into administration or liquidation; • a new labour hire entity is set up and the labour is moved across to this entity; • the process is repeated with the financial benefits from the unpaid liabilities shared amongst the group (, 2009).

RECOMMENDATION In order to minimise the prevalence of phoenix activity in the labour hire industry CFMEU recommends the Victorian Government establish a licensing system which requires proof of the financial capabilities of an agency should be given in the form of a specified minimum start- up capital requirement/threshold capital requirement. As phoenix activity primarily occurs through the liquidation of a business with little or no assets, a capital requirement would prevent a business structuring its operations to hold all of its assets in other business entities (see Recommendation 1.1). In addition, the CFMEU recommends as part of the licensing system, labour hire firms be required to pay a bond, put up as security, to discourage violation of regulation. The bond can be used as security in the event of a labour hire firm failing to meet its obligations, particularly to workers, or for unpaid fines as a result of breaches of license provisions and regulation (see Recommendation 3).

3.4 LABOUR HIRE AND TEMPORARY WORK VISAS Unscrupulous labour hire companies are exploiting foreign workers under temporary work visa programs including 417 and 462 working holiday visas and 457 temporary work (skilled) visas, undercutting existing conditions and worker rights. Temporary work visa holders are particularly vulnerable to exploitation as often their ability to stay in Australia is linked to continued employment with their employer. As a result, they will often tolerate terrible working conditions.

9/ The issue of exploitation by temporary work visa Joanna Howe, an expert in migration and holders is so prominent that in January this year, at the University of Adelaide stated that “where the the Fair Work Ombudsman issued a warning to situation gets particularly difficult is when a third labour hire contractors that it will not tolerate the party gets involved like a labour hire company… deliberate exploitation of foreign workers, such as they fly under the radar and the Department of backpackers and seasonal workers. It revealed it Immigration doesn’t know who are these labour hire had received complaints against working holiday companies that send 417 visa holders to different visa holders being ‘lured to regional centres by locations.” (Meldrum-Hanna, C. and Russell, A, dodgy labour hire operators allegedly treating them 2015). In its submission to the inquiry on temporary poorly, bullying and sexually harassing them and work visa holders, the Law Council of Australia ripping them off to the tune of hundreds of dollars’, stated that the Law Council was aware of repeated (Fair Work Ombudsman, 2015). and serious breaches of statutory protections and entitlements, particularly by labour hire firms. Anecdotal evidence suggests the exploitation of foreign workers by black market labour gangs As with the underpayment of labour hire workers who contract labour to companies or larger labour generally, the exploitation of temporary work visa hire companies. Major companies then use these holders by labour hire agencies, particularly the low labour hire companies to avoid obligations to rates of pay they are forced to accept, undermines employees. An investigation by Four Corners this the pay and working conditions of workers in year uncovered ‘gangs of black market workers Australia who are forced to compete with the lower run by unscrupulous labour hire contractors’ pay and conditions of temporary workers. who preyed on vulnerable foreign workers, many with limited English, particularly in farm and food RECOMMENDATION factories (Meldrum-Hanna, C. and Russell, A, 2015). In October, Baiada labour hire companies were The CFMEU advises the Victorian found to be using labour hire companies who were Government recommend to the Federal allegedly exploiting foreign workers, paying them Government that labour hire firms be considerably below the for long excluded from engaging workers on 417 shifts. and 462 visas. The current work rights attached to the 417 and 462 working holiday visas are not consistent with the stated purpose of the visa as an ‘extended holiday supplemented by short-term employment’ (see Recommendation 3).

10/ 4. Consequences of labour hire and insecure work

4.1 AVOIDING EMPLOYEE ENTITLEMENTS: In a survey of labour hire agencies, Brennan et LABOUR HIRE WORKERS RECEIVE A LOWER al. (2003) found that, on average, less than half of blue collar non-Recruitment & Consulting HOURLY RATE OF PAY THAN COMPARABLE Services Association (RCSA) member labour hire DIRECT HIRE WORKERS workers receive equivalent rates of pay to the host organisation’s pay rates. For RCSA members, “All studies of wage outcomes for labour hire around a third of workers do not receive equivalent workers, in Australia and overseas, have found that rates of pay to the host organisation’s pay rates. they receive a lower hourly rate of pay than their Using data from the Household, Income and Labour direct hire counterparts.” Dynamics in Australia (HILDA) dataset, Watson – Dr Elsa Underhill, Deakin University (2015) compares wages of casual and permanent Supporters of labour hire argue that workers are workers. He finds that after accounting for casual generally happy with labour hire arrangements as loading, part-time casual workers are penalised labour hire allows workers to earn a considerably for working as casuals with men earning 12% less higher rate of pay. The Fair Work Ombudsman and women 17% less. He concludes that from the states that casual employees (the large majority of point of view of earnings, casual jobs are inferior labour hire employees may be considered casual) jobs. The results are consistent with the findings of are ‘entitled to a higher hourly pay rate than Brennan et al. (2003) who found that of Australian equivalent full-time or part-time employees. This is labour hire survey respondents who are aware of called a ‘casual loading’ and is paid because they minimum award rates, 7.5% claim to have been don’t get benefits such as sick or .’ paid less than the minimum award rate. Labour hire agencies surveyed state that over 50% of May, Campbell and Burgess (2005) suggest that blue collar labour hire workers are only paid their while many advocates of precarious work state that minimum award entitlements. Almost two-thirds casual work is not so bad due to casual loadings, of all labour hire workers surveyed would exchange the argument is ‘not backed up by the facts’. their casual loading in return for receiving paid Researchers find that the casual loading does not leave entitlements such as annual leave and sick fully compensate for all the foregone benefits. leave. This indicates that the majority of labour Maria Azzurra Tranfaglia, Research Fellow at the hire employees see casual loading as inadequate Centre for Employment and Labour Relations Law compensation for losing benefits such as leave at the University of Melbourne states that unlike in entitlements. many European countries, labour hire workers “are The background paper to the Victorian Inquiry into not defined by the law as employees of the agency the Labour Hire Industry and Insecure Work states and there is no general legal principle of equal that ‘labour hire workers may not receive the same treatment.” rates of pay and other beneficial conditions as direct employees of a host, for example because Ben M, a carpenter employed through a a collective agreement covering the enterprise labour hire agency in Melbourne, says that does not extend to labour hire staff.’ This means he didn’t feel he could discuss his pay and that a labour hire worker may be paid less than a conditions without risking his job ‘If you direct employee he or she works directly alongside. spoke up they move on to the next bloke.’ In fact, Brennan et al. (2003) found that 31% of host companies do not require employment Dr Elsa Underhill argues that all studies of wage agencies to provide the equivalent basic terms and outcomes for labour hire workers, in Australia and conditions of employment they provide to their own overseas, have found that they receive a lower employees. Nine percent claim they only require hourly rate of pay than their direct hire counterparts this sometimes. (Underhill, 2015). Houseman (2014) finds that temporary agency work is associated with lower earnings with workers in such arrangements earning considerably less than comparable direct- hire workers.

11/ Patrick O, a casual rigger/dogman 4.2 UNDERMINING WORK: LABOUR HIRE hired through a labour hire firm in the WEAKENS THE PAY AND WORKING CONDITIONS construction industry in Melbourne says that he can’t pay his bills and buy food OF DIRECT HIRE WORKERS each week; that he can’t pay his rentwhen The fact that labour hire employees receive a lower it’s due; and does not feel confident about rate of pay than their direct hire counterparts is not the future of his job and income. ‘The only unfair to the workers themselves, but it also company just closed its doors a few days undermines the fair pay and working conditions before Xmas. No warning was given, and of other permanent workers. In a CFMEU report yet I was still expected to be available into sham contracting in Australia’s construction right over the Xmas period, sustaining industry, we noted that the use of labour hire not their business, but only found out there only affects labour hire workers, but also those would be NO PAY coming until January 21. I workers directly hired by the host employer. had to covertly call the CFMEU, who acted Labour hire workers are used not to supplement for me and others too scared to speak but replace direct employees and as their pay is up, and try to ensure we were to be paid often less than direct employees, they can be used over the most important and stressful as a cost-cutting measure which undermines the period of the year. If it wasn’t for them, working conditions of direct employees. my children wouldn’t have even received Xmas presents and we wouldn’t have Labour hire and casualisation is problematic been able to even eat. As a casual, money because ‘it exerts downward pressure on the wages is extremely tight anyway due to lack of and conditions even of those employees that hours of work and being unable to plan continue to be viewed as permanent’. Processes financially. An incredibly stressful time for such as labour hire, ‘threaten the direct or indirect all of my family, at a time we should’ve replacement of permanent workers by casual been able to relax and enjoy. I never wish workers’ (May et al, 2005). to experience that again. PS: Thanks to The Fair Work Ombudsman has stated that on-hire my union organiser, we were eventually workers are not covered by enterprise agreements paid, although this didn’t happen until the made between the host organisation and its own first week of January… direct workers, unless the on-hire business itself is No financial institution will loan money to a party to the agreement (FairWork Ombudsman, casual employees, so to get a mortgage 2015). and your own home is IMPOSSIBLE… you Underhill (2015) argues that labour hire employment worry everyday if you can pay rent, get can undermine employee bargaining power. She a good food shop that’s healthy and pay states “Unless collective agreements provide scope for your children’s needs. I’m now on for provisions relating to the use of labour hire anti-depressants and use Panadol like it’s workers, those collective agreements are at risk going out of fashion- luckily you can buy of being undermined by the very same employer them for less than a dollar for no-name who has entered into the agreement. This is not brands.’ consistent with the objective of a workplace relations system producing fair and equitable pay In terms of superannuation, where workers and conditions for employees, nor consistent with are engaged as independent contractors, good faith bargaining. Prohibiting the inclusion of employers are far less likely to make provision restrictions upon the use of labour hire employment for superannuation. For workers engaged as from collective agreements provides employers with employees, employers are required to make a free choice to side-step the terms and conditions superannuation contributions. However, Buchanan of collective agreements which they have entered (2004) finds that while less than one in twenty into.” permanents did not have or were not contributing to superannuation, 40.5% of casuals were effectively not covered.

12/ The Department of Industrial Relations, Queensland through a Labour Hire Firm/ (2005) found that while the development of were more likely to work full-time hours than enterprise bargaining since the 1980s has resulted Victorian employees in general. (ABS, 2010). in EBAs providing rates of pay and conditions of work that are superior to awards, in the labour Patrick O, a casual rigger/dogman hire sector ‘very few employees are covered by hired through a labour hire firm in the EBAs. Most are covered by basic award conditions construction industry in Melbourne says only’. Those who are covered by agreements are ‘Casual work might suit SOME people, but concentrated in highly specialised professional 99% it doesn’t. It caused many arguments areas. with my wife regarding finances, picking up children from school and school Even in the instances where labour hire employees holidays. ... Mentally, the ramifications of are covered by EBAs, anecdotal evidence suggests casual work can be endlessly negative. labour hire workers may be working on an EBA, Extremely high stress levels due to the which pays lower rates than the agreement unknown for you and your family, which in covering the permanent counterpart they are turn creates low self-esteem, depression, working directly alongside. anxiety and feelings of not being good Labour hire not only undermines the pay and enough to provide for your family. working conditions of direct hire workers, but Marriage problems begin which never research has also found that it undermines the existed before. Tensions between spouses, trust and loyalty of permanent employees (Hall, arguments, sex life issues and happiness 2000). A detailed study of the use of labour hire is replaced by constant tension. Everyone in the Electricity Trust of South Australia (ETSA) in the family feels it, including the children Corporation found that the use of labour hire as they also feel the tension and are workers as a supplement and substitute for affected by the financial constraints you permanent employees had a very pronounced and now suffer. Physically, your health declines negative effect on employee loyalty, commitment due to the mental issues that arise, not and trust with labour hire workers, employees and eating well because I’ve gone without sharing the view that the use of labour so my wife and children can eat well, my hire had ‘destroyed any loyalty in the organisation’ stomach constantly feels like it’s in a tight (Gryst, 1999 in Hall, 2000). knot, and if I don’t end up with an ulcer I will [be] stunned. Headaches for someone 4.3 THE FLEXIBILITY MYTH: LABOUR HIRE who never got them before, are now WORKERS OVERWHELMINGLY WOULD PREFER common.’ TO BE EMPLOYED DIRECTLY RATHER THAN The overwhelming majority of employees used a WORK FOR A LABOUR HIRE EMPLOYER labour hire firm due to the ease of finding work or an inability to find work. This included: 71% who “It is not correct to say that many people in non- cited the ease of obtaining work; 9% who stated it standard employment have positive views about was a condition of working in the job or industry; their jobs. Labour hire employees have particularly 7% who cited an inability to find work in their line negative views about their employment.” of business; and 2% whose lack of experience – Dr Elsa Underhill, Deakin University prevented them from finding a permanent job. By Advocates of labour hire argue that non-standard contrast, only 3% of workers stated a preference employment provides greater choice for workers for short-term work and 7% who stated flexibility as within the labour market. Labour hire arrangements a reason. are supposedly beneficial as they provide flexibility for those wishing to work limited hours (Brennan et al, 2003). However, this is not the reality. ABS evidence finds that only 7% of employees state flexibility as a reason for using a labour hire firm and the majority of workers who found their job

13/ Seventy six per cent of workers who found work regime of the management of labour. It is not one through labour hire in Victoria, work full-time.1 This of unlimited choice and flexibility that is mutually is a considerably higher proportion than the 66.5% advantageous to workers and employers. Rather, it ratio of full time employees to total employees is a regime which fits many workers into the needs in Victoria according to the Australian Bureau of production and service provision by offering only of Statistics (ABS, 2015b).2 This suggests that very limited choices to workers.’ finding part-time employment under a labour hire arrangement may actually be more difficult than Justin M, a construction worker employed finding part-time employment as a direct hire. through a labour hire agency in Melbourne says he wasn’t paid fairly and correctly The reality is that employees predominantly enter for the hours he worked and didn’t feel into labour hire arrangements due to a lack of he could discuss his pay and conditions secure employment opportunities. For growing without risking his job. ‘I was employed numbers of blue collar workers, casual work is the through a labour hire agency less than 3 ‘only form of employment available’ (Buchanan, months ago. You can’t ask for more, not 2004). Monash University’s Veronica Sheen states when you’re constantly reminded how that for many people, casual jobs, like many labour good you have it... People who complain hire positions, are ‘the only jobs they can find and too much don’t keep jobs. I asked for a are neither transitional nor a lifestyle preference’. week off to undergo surgery, and lost This is consistent with Brennan et al. (2003) who my job because of it… I was constantly found that approximately one third of labour hire stressing about my future, where I was workers felt they had no choice but to be a labour going to be in a month’s time, how I hired, or on-hired worker, and two-thirds of workers was going to pay the bills after that job would rather be hired directly. finished.’ A construction worker employed through a labour hire firm in Melbourne, who wishes to remain anonymous stated that he has ‘no idea if I’m getting money at all week to week, last week I worked 5 days this week I haven’t worked one!!! I am online all day searching for decent paying full time work the only calls I get are from agencies offering low paying casual work without guaranteed hours, the banks won’t give me money. I can’t even get a phone on a plan because I need full time work!!! … It is not a privilege to have a job! I want to work, I want secure pay and conditions, why must I feel lucky if I can get that!!!!’

In terms of casual labour, Buchanan (2004) found that while many casuals have predictability in their hours of work, many don’t – and would like it. He concluded that it is clear that growing numbers of workers are in a weaker position to enforce their rights or fulfil their preferences. Employer driven flexibility is not synonymous with casualisation. ‘Casualisation is part of a new

1. ABS categorises full-time vs. part-time based on the number of hours worked, as casual employment is based on the employment contract an employee can be full-time and casual, or part-time and casual.

2. According to ABS Labour Force Statistics, as of Sep 2015 2,935,800 people were employed of which 1,952,800 were employed fulltime.

14/ 4.4 NO OPPORTUNITIES: PRECARIOUS WORK ‘boosts labour productivity by pushing many of the costs and risks of employment onto workers’ DOES NOT PROVIDE AN OPPORTUNITY FOR (Buchanan, 2004). MORE SECURE WORK Underhill (2011) states that the benefits of labour “Research finds little evidence that temporary hire, including in the building and construction agencies help workers gain regular employment; industry, include the ability to access a large supply they may even impede it.” of suitable labour to meet peaks and troughs and – Susan Houseman, W.E. Upjohn Institute for short-term business needs, having greater control Employment Research over the amount of time employers choose to employ workers, etc. However, she found that Brennan et al (2003) state that another perceived many of these benefits stem from the casual nature benefit of the on-hired, or labour hire, market is that by which labour hire workers are hired; allowing it could be seen to be a stepping stone for those agencies to hire and fire workers according to the wishing to get into or return to the workforce. The demands of host organisations. ABS found that only 3% of employees responded with ‘gaining experience’ as a reason for using a Productivity is an oft-used justification for cost labour hire firm. This is clearly not a significant cutting. However, productivity is a measure of motivation. efficiency not cost. Productivity implies optimal use, that resources are used in the best way to Houseman (2014) suggests that temporary agency produce the greatest outputs. It means that simply workers can become trapped in unstable, low cutting the resources available to services does paying jobs that offer ‘few opportunities for not imply improved productivity. Productivity can advancement and development’ and that rather also be achieved through increasing input costs than providing a foot into future more secure where funding is used to improve output by an even work, labour hire work can actually be ‘detrimental greater amount. to a worker’s future employment and earnings if it crowds out productive job search and leaves Reducing wages and conditions may provide gains little time to look for other employment. If it fails in the short run, but is likely to have negative to enhance skills or provide contacts with other effects in the long run due to an increasingly potential employers, a worker could be better off unskilled workforce and dissatisfied workers. Job declining an offer from an agency and searching insecurity and poor conditions can cause significant intensively for regular employment.’ stress. Wooden and Warren (2004) used data from the Household, Income and Labour Dynamics in She finds that several international studies have Australia (HILDA) Survey to find that fixed-term found no evidence of a stepping-stone effect. On employees were the most satisfied with their jobs, average, taking a temporary agency job does not while casuals were the least satisfied particularly improve workers’ chances of finding more regular those employed through labour hire agencies. employment rather it may impede it and lead to Research shows that insecure employment is more temporary jobs. This is consistent with the linked to negative effects including demotivation, findings of the Brennan et al. (2003) survey which decreased , etc. (McNamara, 2006). found only 19% to 25% of on-hire employees Reduced wellbeing is associated with decreased become permanents with their host organisation. productivity (Oswald et al. 2014). 4.5 THE PRODUCTIVITY MYTH: LABOUR HIRE WORKERS ARE LEAST SATISFIED WITH THEIR JOBS It is commonly assumed that employment through labour hire is a more ‘efficient’ or ‘productive’ way of engaging labour. The idea is that labour costs can be reduced, and productivity increased, by having a more ‘flexible’ workforce to match fluctuations in workforce needs. It is an approach to labour which

15/ A traffic controller employed casually in problems will exist ‘where there is a very loose the construction industry in Melbourne employment relationship between the worker and who wishes to remain anonymous stated the firm; for instance casual and agency labour…’ ‘Client expectations often ignore safety Hall (2000) states that while there are short-term of workers. My employer has no HSR on cost benefits associated with labour hire, there are the . Due to the irregularity of the longer-term costs in terms of declining employer- work, one has to keep one’s personal life funded , skills losses, reduced employer on hold to ensure adequate earnings to commitment to human resources development pay the bills. Quality time with my family is generally, and declining employee loyalty, trust and in short supply due to the unpredictability commitment. of work. Luxuries like holidays are unaffordable due to the inability to predict A worker employed in the coal industry, earnings. When the money is earnt it who wanted to remain anonymous stated stays in the bank to ensure costs of ‘I was employed through a labour hire living can be met... Remove casualised agency in my current job. [I was paid a work force for all work performed on flat rate with] no annual leave, no sick a daily and permanent basis. Casuals leave… and no as the should only be used in top up situations. contract [was] renewed every 3 months. Labour hire should not be used except Threatening to sack you if you did not when exceptional circumstances exist wear their work shirts. Making you take that require short term top ups of the unpaid leave to attend training courses workforce.’ and pay for your own courses... More or less just shut up about safety or you will Levels of productivity for labour hire and casual get sacked. Don’t have any incidents or workers are likely to be lower as workers know they you will be sacked. [They] sack you by text are not permanent; if there is no job security this is with 3 hours’ notice. [They] notify you by reciprocated with less concern for the outcomes of text, with 3 hours’ notice, that there is no the business. work or to leave work…. [I am] too scared Allan (1998) states that, in an attempt to reduce to take any time off as you would lose employment costs, many employers are opting for your job. [You have to] come to work sick. non-standard forms of employment as it allows Don’t report incidents. Feelings of bullying, employers to pay labour as and when required. intimidation and harassment. Immense However, he states that often the disadvantages of pressure on all [of my] family. I can’t get a a ‘flexible’ workforce are overlooked. ‘The workers home loan as [I have] NO permanent job, have less time commitment and arguably less NO money in bank, I can’t socialise, can’t psychological commitment to the organisation spend money as [I am already] too far in which can lead to problems of motivation, credit card debt.’ communication, confidentiality and . Further skill retention problems can develop as these workers may not be fully integrated in the human resource training systems in many companies... lack of training, less experience and poor motivation can also lead to a deterioration in quality standards of goods produced or services provided… the status division between atypical and full-time employees can also create animosity that undermines team work and cooperation ’. Decreased labour costs do not lead to improved productivity if it results in a decrease in output. Allan states that these problems do not apply equally to all categories of non-standard employment and that it is likely the greatest

16/ Buchanan states that even if there are short-run files, she found that precariousness contributes gains in productivity through the use of casual to labour hire workers’ adverse health and safety labour, the productivity gains are ‘unsustainable outcomes and that the complexities associated in the longer term because they are undermining with the triangular structure of the employment the reproduction of skills needed for future growth’. relationship heightens their vulnerability further. Casualisation and labour hire is not conducive to productivity growth through skills development, Patrick O, a casual rigger/dogman rather it reduces business’ ability to maintain a hired through a labour hire firm in the high performing workplace. In a survey of labour construction industry in Melbourne says hire agencies, Brennan et al (2003) found that 50% that his workplace is not always safe, he of agencies do not provide training to on-hired was not told about WorkCover and what workers, 88% rarely or never engage apprentices. to do if he was injured and does not feel In order to improve productivity, focus needs he can discuss health and safety without to be on innovation and training, including the risking his job. ‘I work in the construction development of workforce skills. industry as a rigger/dogman, which is very dangerous at the best of times. As The findings are consistent with a survey of a casual, you have absolutely no secure Australian host companies, which finds that 82% of ground to stand on, and if you even hosts find that the use of agency employees only question health and safety, the builder contribute slightly or not at all to the organisation’s you are on-site for will call you a trouble productivity and competitiveness – Brennan et maker, phone your employer, and demand al. [2003). Seventy-three per cent of hosts say not to send you back to that job. So your that the labour hire agency does not provide any employer gets angry and blames you, and services that enhance productivity other than ‘basic before you know it you don’t get any more recruitment services’. phone calls for work and are hung out to 4.6 POOR OHS OUTCOMES: LABOUR HIRE dry. So you are constantly putting your safety at risk due to intimidation and fear EMPLOYEES ARE MORE LIKELY TO BE INJURED of losing your livelihood.’ AT WORK In a report prepared for WorkSafe in 2002, Underhill “All studies of labour hire workers and occupational found that the increased likelihood of injuries is health and safety in Australia and overseas have explained by “the intensity of tasks in unfamiliar found that labour hire employees are more likely to settings; insufficient experience, training and be injured at work, compared to direct hire workers supervision for the tasks performed; insufficient in like occupations” information exchange between employer, client and – Dr Elsa Underhill, Deakin University employees; lack of discretion in the way tasks are performed; and the potential offloading of high risk WorkSafe Australia found that in 2012-13, there tasks to labour hire employees.” were 1,865 serious injury claims for employees in the labour supply services industry3 and four McNamara (2006) found that characteristics of fatalities. In 2014-15, the number of labour hire precarious work, including greater insecurity; businesses registered for WorkCover premium economic and reward pressures; low levels of services was 933. social support; imbalance of demands and control; disorganised work processes or settings and lack Underhill (2002, 2011) has noted that international of induction and training; and regulatory failure studies find that temporary agency or labour contribute to adverse OHS outcomes. She states hire workers are more likely to be injured in the that ‘Job insecurity and especially the fear that workplace than other types of employees. The absence from work or even refusal to do same is true for Victoria, with labour hire workers might increase the likelihood of redundancy, means being more likely to be injured and with injuries that some workers may avoid taking time off even more severe. Using worker’s compensation claim

3. A serious claim is an accepted workers’ compensation claim that involves one or more weeks away from work and excludes all fatalities, and all injuries and diseases experienced while travelling to or from work or while on a away from the workplace.

17/ when ill… Casual workers receive no paid sick Alistair P, hired through a labour hire leave, annual leave, carers leave or public holidays. agency in the mining industry stated Thus being sick is a real problem or hazard for the ‘I’m a Boilermaker by trade, and because majority of casual workers.” of my height (195cm) they put me in a position where I was forced to weld in Richard M, a casual Crane Driver in overhead position for 7-8 hours with my Melbourne said he was not paid fairly and neck in hypertension. After about 5 hours correctly for the hours he worked, and did of welding in that ridiculous position, not believe his employer was complying the cervical disc prolapsed in the blink with the law. He also said his workplace of an eye. It was a grindy kind of clicking was not always safe, he was not told sensation in my neck that lasted under about WorkCover but felt he could not a second, followed by a nervous tingle discuss his pay and conditions or health down my right arm that went for about and safety without risking his job. ‘Cranes 15-20 seconds. That was the annulus of had no load charts!!! Riggers were too the cervical disc failing and the jelly inside inexperienced. We were expected to lift the disc squeezing out. The headshield dangerous deliveries (reo in bags). Rubble had overloaded the cervical disc. Anyway and rubbish in bags instead of rated bins. I was stuck in the mine site like that for No street protection for the public and nearly a week, and had to wait another dogmen. Reo bars not capped. Balconies 2 weeks for spinal surgery in Perth. They overloaded.’ He stated that he ‘carried didn’t send me to hospital, they bailed an injury because l was afraid to report me up in a hotel instead. And on the day it. [was] constantly stressed because of surgery, while on the table with a hole of lack of job security and belligerent in my throat the size of a lemon, [the angry bosses. [he was] Always stressed company] terminated me. Yep. Fired on because safety was ignored and men with the table. Now I have 25.4% of permanent my experience are told to shut up or get overall body impairment, and 62.5% of sacked. NO DECENT OH&S REPS ON permanent calculated injury to my cervical MOST SITES.’ spine. For life. Show me an employer who will employ a Boilermaker with a The findings were consistent with those of prosthesis in their spine. You’re joking. a Productivity Commission inquiry report They won’t go anywhere near me. That which identified a review of 188 Australian and mining company destroyed my life and international studies conducted by Quinlan (1999) career. Personally I think that I’m better that found almost 90% of studies discovered off as ash. I wasn’t even compensated precarious employment resulted in inferior OHS adequately…. I was on permanent labour outcomes like higher injury rates, hazard exposures, hire. Meaning I could go any day. Even if disease and stress. I did nothing wrong or out of line. Even The dissenting report of the House of Representatives if injured. Working under labour hire Standing Committee on Employment, Workplace is inappropriate for tradies when you Relations and Workforce Participation’s inquiry consider what can happen to us. Labour into Labour Hire Arrangements and Independent hire is casual essentially....and in our line Contracting found credible evidence of difficulties in of work this can mean being casually identifying the responsibilities of parties under labour injured or casually killed. Those T&Cs are hire agreements: ‘the triangular relationship, involving inadequate and totally inappropriate. ‘ the labour hire agency, the host firm and the labour hire worker has led to a blurring of legal obligations and entitlements in a number of areas, such as occupational health and safety and return to work policies.’

18/ Underhill (2002) concluded that “the characteristics of claims for Victorian labour hire employees... suggests these employees are overlooked with respect to injury prevention both by labour hire companies and host employers.” Brennan et al. found that approximately 40% to 50% of labour hire agencies do not consistently provide safety inductions for their employees and 34% to 39% of labour hire agencies do not even assess the host organisation’s OH&S systems and workplaces prior to assigning employees. Almost 50% of hosts state that labour hire agencies never conduct OHS assessments of their workplace, a further 19% say it occurs only sometimes. While regulation means both permanent and casual workers should be covered by workers’ compensation, in practice it is not the case. Buchanan (2004) found that while less than three percent of permanent workers are not covered by workers’ compensation arrangements, over one in five casuals (21.7%) were found not to be covered. Brennan et al. (2003) found this is particularly important for labour hire workers who are hired as contractors, with only 35% of these workers holding workers’ compensation coverage.

Sarah, a contractor in the construction industry in Geelong states that her workplace was not always safe, she was not informed about WorkCover and she did not feel she could discuss health and safety without losing her job. She said ‘I was contracting with an ABN but to one employer only. I know this is illegal and I know myself and other workers are being paid incorrectly through ABN but to speak up is to lose your job. If WorkCover is mentioned it’s a big issue. Employers cringe at the words so to keep your job you don’t mention it. If leave is taken then that puts your job at risk. The threat of being put off is always lingering if time is taken off. Being paid ABN means redundancy is not paid and money is tight if you are put off. Bring in safe secure working conditions. We deserve to be paid honestly and reliably for the job we are qualified to do.’

19/ 5. Current state of regulation in Australia

Corrupt practices have become the norm in the with another labour hire company. The dismissed recruitment industry, and those agencies that will employees lodged two unfair applications, not entertain them face a hard struggle to survive, one against Tooheys as their employer and the as complicit end-users drive prices ever lower… other against FP. Both companies argued that the The mass exploitation of hundreds of thousands of other was the actual employer of the employees. workers could easily be stopped by a government The Fair Work Commission ruled that FP, not that had the will to do so. Recruitment agencies Tooheys, was the employer, and that FP did not act should be licensed, with the highest standards set, as an agent of Tooheys in employing the workers. and loss of licences for those that fail to match The Fair Work Commission rejected the argument them. It should not only be unacceptable for that Tooheys and FP were joint employers, stating agencies to exploit the very workers who earn them there were no Australian decisions which supported money: it should be impossible.’ the existence of the joint employment doctrine in – Adrian Gregory, Director, Australian Law (Ellery et al., 2014). Extraman Recruitment UK. The Fair Work Ombudsman has stated that the The regulation of labour hire in Australia is on-hire (labour hire) business, ‘as the employer, complicated comprising both Federal legislation is responsible for meeting all of the employee and State based laws which impact on different entitlements of the employee’ (Fair Work forms of working arrangements. The primary Ombudsman, 2015). source of employment rights and conditions for As such, the laws that exist, primarily relate to Victorian employees is outlined by the federal Fair the relationship between the employee and the Work Act 2009, which applies to all workers and labour hire firm. As stated in the background paper includes National Employment Standards, Modern to this inquiry “the central relationship these laws Awards, Enterprise Agreements, protections from regulate is that of an employer and an employee. unfair dismissal and adverse action and protections Moreover, many rights and conditions are afforded against ‘sham contracting’. only to ongoing employees or long-serving casual At the Federal Level, Maria Azzurra Tranfaglia, employees. Fewer rights, conditions and protections Research Fellow at the Centre for Employment are extended to independent contractors”. and Labour Relations Law at the University of As mentioned in previous sections, as labour hire Melbourne states that in Australia, there are no employees are often not covered by the collective regulatory mechanisms for labour hire (such as the agreement or EBA covering direct employees joint liability regimes or joint-employment doctrines at a host organisation, their rates of pay and adopted by parts of Europe and the , other working conditions can be, and often are, which divide responsibilities between the agency substantially worse. This doesn’t even start to cover and the host) or regulatory requirements, such the proliferation of workers who are hired under as financial guarantees, limitation to activities or sham contracting arrangements. authorisation. In terms of State based regulation, Victoria In terms of joint employment, where the agency provides general rights entitlements for workers in and the host would both have responsibility and relation to long service leave, Occupational Health obligations towards the labour hire worker, the and Safety (OHS), , workers’ status of such joint employment in Australia is compensation, etc. “unclear” (Pointon Partners, 2014). However, a 2014 decision by the Fair Work Commission rejected the However, the current regulatory framework is visibly concept of joint employment. The case involved scarce when it comes to regulating the distinct Tooheys in NSW, who entered into a labour hire triangular relationship that exists in the labour hire agreement with Feyman Pty Ltd (FP) for electrical industry. Not only are joint employment doctrines tradesmen. The arrangement was implemented by lacking, but there is no sufficient regulation for the Tooheys who terminated 19 electrical tradesmen industry itself in terms of licensing, restrictions on (employees of Tooheys) who continued to work scope of service, authorisation, monitoring and at the brewery employed by FP under the labour compliance, etc. hire agreement. Tooheys later terminated its While labour hire agencies may argue they are relationship with the FP group and replaced it regulated by federal and state laws in relation to

20/ minimum wage, workers’ compensation insurance, to act unscrupulously for their own benefit at the etc., the large and growing number of dodgy expense of their workers. Immoral providers are operators exploiting workers, and the conditions unlikely to voluntarily commit to an industry code. mentioned in previous sections, has proven that Even if they do, they are unlikely to follow it when this system alone simply isn’t working. Labour hire they have no incentive to do so. In fact, as there workers are particularly vulnerable to exploitation are costs associated with following the code (such due to the triangular work relationship and the as paying workers appropriately), those businesses precarious nature of their work. who do choose to follow it will not likely survive the increased competition from those providers, with The Recruitment and Consulting Services lower costs, who do not. The International Labour Association Australia and New Zealand (RCSA) has Organization (2007) has stated ‘mindful of their established a Code for Professional Conduct and negative image, in some quarters, leading private a proposed RCSA Employment Services Industry employment agencies have developed mechanisms Code as they have recognised and acknowledged of self-regulation to promote good business the exploitation of vulnerable workers that exists in practice and receive recognition as legitimate the labour hire industry. places alongside public employment services. They support the inquiry stating “This inquiry is an Self-regulation, however, cannot replace the role of opportunity to significantly improve the protections national legislators and law enforcement agencies.’ available to vulnerable workers… The existing As a consequence, the CFMEU believes that any patchwork of state licensing schemes is failing effective regulation needs to be implemented at to eradicate the poor conduct of a small number both the federal and state government levels. It of illegal and unscrupulous operators. We believe cannot be voluntary and it needs to be enforceable. an ESIC [Employment Services Industry Code] While there is still significant work to be done in could provide a specific, coherent and nationally relation to federal workplace laws, including in consistent regulatory framework that is relevant to relation to EBAs, this is beyond the scope of this the contemporary labour market” (RCSA, 2015). initial submission. The recommendations in this The problem with industry self-regulation, as submission should be viewed as a starting point for economists will agree, is that it doesn’t work. It is state based regulation. It should not be viewed as obviously in the self-interest of some providers an exhaustive list.

21/ 6. Recommendations

“If current trends continue, we are likely to The ILO (2007) suggested that the ‘starting point’ witness the further erosion of safety and training for all regulation on labour hire is the determination standards – as well as growing numbers of of the legal status and conditions governing their working arrangements that do not reflect workers’ operation. ‘The legal status shall be determined preferences. While this may be sustainable in the according to national law and practice and its short run – in the longer term it implies a profound operation, according to a system of licensing or drop in working life standards for many people. certification.’ Inequality does not just concern wages and income It states that the advantage of compulsory licensing – it goes to the whole experience of life and the is that it allows for a pre-screening of applicants’ character of jobs created.” capabilities and professional experience in the job – Professor John Buchanan, University of Sydney agency market. It also helps create transparency and can be used as a means to improve the RECOMMENDATION 1: INTRODUCTION functioning of the labour market. OF A LICENSING SYSTEM The licensing system we propose should be viewed Current conditions for workers in the Labour as a starting point for reducing the exploitation Hire industry are inadequate. To improve these of labour hire workers by unfair employers and conditions, regulation needs to be implemented and labour hire agencies. It should not be considered a adequately enforced by the Victorian Government. complete solution. There is still significant work to CFMEU believes that this is best achieved through be done in relation to federal workplace laws which the use of a licensing system which creates barriers are beyond the scope of this initial submission. to entry to reduce the number of unscrupulous Before adopting any licensing regulations and operators and includes a system of enforcement provisions, it is appropriate that the Victorian which results in adequate penalties and removal governments consult the most representative of licensing when licensing requirements are organisations of employers and workers as the breached. Licensing requirements currently exist inclusion of social partners gives useful references in Western Australia, South Australia and the to the ‘precise need in the labour market for the Australian Capital Territory. operation of private employment agencies’ and Underhill (2013) has stated that in the past decade, brings forward specific concerns e.g. ‘referring a number of countries have introduced licensing to certain groups of workers that are particularly arrangements and strengthened existing schemes. vulnerable to exploitation and abuse’ (ILO, 2007). Clearly, they recognise the necessity of doing The CFMEU appreciates the opportunity to provide so. Most EU countries have introduced licensing consultation on a licensing system as described schemes alongside the implementation of the EU below, and welcomes any further consultation Directive on Temporary Agency Workers, which into the specific details of a Victorian labour hire seeks to guarantee those who work through licensing scheme. employment agencies receive equal pay and RECOMMENDATION 1.1: THRESHOLD conditions with the employees they work alongside. Countries including Japan, Singapore and South CAPITAL REQUIREMENT Korea have strengthened their existing licensing CFMEU recommends proof of the financial arrangements as the current systems were viewed capabilities of an agency should be given in the as ineffective. form of a specified minimum start-up capital The experience of these countries indicate that requirement/threshold capital requirement. A not only is a licensing system required to ensure licence threshold for a minimum amount of required adequate conditions for labour hire workers, but capital ensures that only agencies with sufficient that ‘licensing is regarded only as a means to assets and/or revenue would be able to obtain a an end, not an end in itself. Its effectiveness is licence. As such, the threshold requirement acts as intricately related to the nature of the labour laws a barrier to entry for firms with insufficient capital which the licensing system supports’ to operate in the industry. (Underhill, 2013).

22/ This requirement would help minimise the problems RECOMMENDATION 1.3: COMPLIANCE UNIT associated with phoenix activity mentioned in For a licensing scheme to be effective it needs Section 2. As phoenix activity primarily occurs to be properly enforced. Without enforcement, through the liquidation of a business with little or agencies can simply choose to ignore regulation. no assets, a capital requirement coupled with the An effective compliance unit will approve licences, licensing requirement referred to above for the monitor licensees and conduct investigations of same entity, would prevent a business structuring breach of licences and other laws with the ability its operations to hold all their assets in other to revoke or suspend licences. Penalties need to business entities. be adequately imposed so they act as an effective RECOMMENDATION 1.2: LICENSING deterrent for bad behaviour. These should include significant fines and imprisonment in the case of BOND AND ANNUAL LICENCE FEE intentional breaches. The compliance unit can be CFMEU recommends that firms be required to funded with the support of the administration of a put up a licensing bond in order to be licensed licence fee as mentioned above. as a labour hire agency to be used as security in The ILO has stated that as part of their licence the event of a labour hire firm failing to meet its conditions, labour hire agencies should be made obligations, particularly to workers, or for unpaid to comply with all relevant labour laws ‘although fines as a result of breaches of licence provisions this requirement seems to be self-evident, it is, and regulation. for various reasons, of crucial importance.’ The The ILO has stated that a bond, put up as security, holding of the licence must be subject to ongoing can ‘serve as a safeguard to ensure that [the compliance with state and federal laws and agency] complies with the provisions of the regulations. As demonstrated by recent examples, legislation... In addition, any loss or damage there are significant failures by agencies to ensure occasioned to any person, due to any failure to workers receive their legal entitlements. A licensing comply, can be repaid from the deposit’. scheme must, in parallel to appropriate federal regulation, eliminate this exploitation. They found that such a policy seems to be effective in discouraging violations of regulations, if they In South Korea, penalties for operating without a are ‘based on clear rules and regulations guarding licence or breaching regulation can be severe and the procedure of confiscating the deposit in are in addition to licence cancellation. A licence cases of misconduct’ including paying workers for can be cancelled for reasons including gaining the amounts owing. In addition to the threshold capital licence under false conditions; failing to meet the requirement, bonds can also be used as proof of the licensing requirements; breaching the conditions financial capabilities of the agency. For example, on dispatching workers (such as duration and in Singapore employment agencies are required to occupation of placements, etc.). Once a licence has pay a security deposit with the amount depending been cancelled or suspended, public signage can on their track record and volume of placements, be placed at the agency indicating the business is ranging from S$20,000 to $S60,000 illegal (Underhill, 2013). (Underhill, 2013). In addition to enforcing the compliance of labour In addition to the bond, an annual licence fee hire agencies, the compliance unit would also should also be charged. Underhill (2013) states investigate breaches by host organisations in that most licensing arrangements require the relation to related offences. This would include licence holder to pay an annual fee, which assists breaches such as engaging an unlicensed labour in covering the administrative costs of the hire agency. In Singapore, in 2011, penalties (fines licensing scheme. ILO (2004) has stated that it is and imprisonment) were introduced for hosts common to collect a registration fee from agencies that knowingly engage unlicensed employment ‘The payment of a registration fee covers the agencies with the penalty increasing based on administrative procedure of the licensing agency whether it is a first offence or subsequent offence and can also be seen as a proof of the financial (Underhill, 2013). capacity of [the agency] wishing to enter the market.’

23/ INCREASED TRANSPARENCY own WorkCover policy. The workers were fired after one week of work which they assert had something The compliance unit should also have responsibility to do with the presence of a union organiser on site, for establishing a public register of all licensed asking about their working conditions: ‘put two and labour hire agencies. The ILO has stated that if a two together: the union come in and then I get the licensing system for the operation of labour hire arse later on that day’ (McGrath, 2015). is installed, a register of all licensed agencies can be made public. ‘Such a public register (with As a requirement for a licence, CFMEU recommends information on licensed agencies, their addresses licensees to be required to educate new labour hire and possibly the expiration date of the licence) workers about the nature of their employment as ensures that anyone can verify whether the well as their entitlements and workplace rights. This [agency] they wish to consult is actually legitimate. would best be facilitated through an information Illegally operating [agencies] can be much more sheet or approved training by a relevant trade easily identified if it is known which agencies are union. It should include a union rights component licensed or not.’ (ILO, 2007). They state that a high which outlines the worker’s right to join a union. degree of transparency is advisable particularly in RECOMMENDATION 2: ESTABLISH A markets, like Australia, where many agencies are active. STATUTORY MAXIMUM PERIOD FOR The register would also facilitate the collection of LABOUR HIRE ASSIGNMENTS WITH A information by the Victorian Government in relation HOST ORGANISATION. to the current environment of the labour hire industry operating in Victoria, including information The purported benefit of labour hire is to provide on particular labour hire agencies as needed. The flexibility for firms to meet fluctuations in workforce IFO has stated that requiring agencies to regularly needs. This is not how it is being used. Labour inform (in this case, the compliance unit) on their hire agencies are increasingly being used to activities provides a better picture of the industry. replace a permanent workforce with a precarious It states that some countries require agencies one. In order to ensure labour hire is not used report on their activities monthly or quarterly while to undermine Australia’s working conditions, many others require agencies to keep records on a statutory maximum period for labour hire recruited workers to be made available on request. assignments is required. RECOMMENDATION 1.4: INFORMING In Japan and South Korea, regulation places a limit on the maximum period of placement of a WORKERS OF THEIR ENTITLEMENTS OR RIGHTS dispatched labour hire worker (Underhill, 2013). In the 2005 final report of the Inquiry into Labour However, any regulation needs to be carefully Hire Employment in Victoria, the Economic examined for the ability for firms to sidestep. For Development Committee acknowledged the lack of example, in Japan, laws have been ignored or understanding of labour hire workers in relation to evaded by change of job title or moving the agency their employment status and working conditions, worker to another division of the organisation. recommending “an information campaign for labour Such regulatory measures which set limits on hire workers with the objective of providing easily the duration and location of placements can be accessible information on the employment status integrated within a licensing system. and entitlements of labour hire workers.” RECOMMENDATION 3: LABOUR HIRE FIRMS Case studies have indicated that worker SHOULD BE EXCLUDED FROM ENGAGING exploitation occurs in workplaces, and among labour hire agencies, where there is little union WORKERS ON 417 AND 462 VISAS. presence and where workers are deterred from As stated in the CFMEU’s submission to the senate interacting with the union. For example, in a inquiry into temporary work visas. The current work recent high profile case of Myer and Spotless, rights attached to the 417 and 462 working holiday it was reported that workers were hired under visas are not consistent with the stated purpose of independent contracts and were completely the visa as an ‘extended holiday supplemented by unaware that they needed to be covered by their short-term employment’. Both visas permit work

24/ for the entire length of stay in Australia as either a RECOMMENDATION 4: REQUIREMENT TO direct employee, ‘independent contractor’ or ABN PAY EMPLOYEES THE MARKET WAGE RATE worker, with the restriction that the holder must not be employed by any 1 employer for more than All studies of wages for labour hire workers have 6 months. The Department of Immigration and found that they receive a lower hourly rate of pay Border Protection (DIBP) allows an exception to the than their direct hire counterparts. People who work 6 month rule for those working as ‘independent for labour hire companies can be paid less than contractors’ or with labour hire firms. These a permanent worker they are working alongside. arrangements are not consistent with the short- In order to prevent labour hire workers being term purpose of holiday visas and are easily underpaid, the Victorian Government should make abused – as has been shown recently through a recommendation to the Federal Government that the numerous cases of labour hire exploitation of requires labour hire employers to pay the market working holiday and 457 visa workers. rate for employees, where the market rate is determined by the EBA at that location. As such, the Victorian Government should make a recommendation to the Federal Government that labour hire firms should be excluded from engaging workers on temporary work visas.

25/ References

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