A Licence Will Fix It! Really?

It’s extraordinary that, after 120 years of unsuccessful employment agency licensing in Australia, anyone could still think that compulsory licensing will provide any sort of solution for the various forms of labour market exploitation with which the supply of employment services (but apparently not use of those same services) is being increasingly associated in the populist mind.

There are three types of licencing that anyone who wants to improve employment services industry regulation should be thinking about right now. And the type that the loudest and most extreme voices are touting is definitely not up to the mark

Restrictive Licencing

This is the type of licensing that those beset with moral panic at recently publicised labour market failures are clamoring for. It’s the licensing equivalent of a posse  with a rope. It’s old school licencing. It’s like saying, “You can’t do that unless the government gives you the OK”. It’s the traditional licencing that was popular back when employment agency licencing was introduced to Australia and New Zealand in the 1890s! Yes – that’s not a misprint – the 1890s.

Restrictive licencing creates closed-shop barriers to entry. You might be able to live with that if you’re comfortable with who’s running the shop; and if you can go away and set up a different shop of your own.

But it doesn’t work that way. It creates single point in time regulation – you get the licence if you’re a fit and proper person at the time you apply for it and pay the fee. You lose it at the time you mess up badly enough … if anyone’s watching – not that anyone usually is!

Being a “fit and proper person” usually involves “fitting the mould”. In most cases, it’s a backward looking mould.

So restrictive licencing can stifle innovation. New products and services, new patterns of doing business, that don’t fit the mould must either wait until the licence scheme changes to recognise them, or operate on the fringes (or outside) the regulated environment. Either way, that’s not a good model for regulation. And that’s why they were thought to be anti-competitive 100 years later when the Eastern states and New Zealand got rid of them.

Negative Licencing

Negative Licencing is the licence you have, when you don’t need a licence. It’s a product of liberal market thinking that says, “Sure! Go ahead and do it for all you’re worth… honestly, of course. But if you mess up badly enough and anyone is watching – not that anyone usually is – we might stop you”.

This is the type of licencing that you might find in market-driven economies. It sits more comfortably with Australian and New Zealand government thinking – at least at Commonwealth and National levels. It’s what Western Australia is thinking might replace its current restrictive licencing framework.  Here’s what the WA government says about it (1):

Under a negative licensing system, employment agents would be required to comply with regulated standards in terms of work or conduct. Industry entry would not be regulated but there would be a mechanism within the Act to provide the Commissioner with the authority to institute disciplinary proceedings in the State Administrative Tribunal to exclude an agent from the industry where they have breached regulated standards in the Act.

  • Reduced regulation and lower costs for agents. Consultation conducted as part of the NCP Review suggested that the only substantial administrative cost incurred by employment agents was the application and renewal fees. These fees would no longer be applicable under a negative licensing system.
  • Retention of conduct requirements. Employment agents would continue to be regulated by the Act in terms of conduct, which is an important safeguard for both employers and job seekers.
  • Continued monitoring of the industry, with an established procedure for excluding employment agents who breach conduct requirements under the Act. While the Commissioner would no longer assess applicants before they commenced work as an employment agent, the Act would allow for application to the State Administrative Tribunal to ban a person from the industry.

The main disadvantage of a negative licensing system is that it may result in inappropriate persons conducting business as employment agents, as there would be no assessment prior to an agent commencing business. However, despite the existing long standing licensing regime, a common complaint received by the Department is that of unlicensed trading as an employment agent, suggesting that this issue already exists to some extent.

Well that would be OK if the “conduct requirements” were clear enough and could be applied and accessed easily enough to let people know what standard of conduct was required and what to do when it is not met. There are plenty of generic standards – “good faith”, “no misleading conduct” etc – but generic standards need specific applications. And they need to be paired with suitable dispute resolution schemes – not schemes that are designed to detect, prosecute and punish criminal activity. What they need is a dispute resolution scheme that is more concerned about making sure employment services suppliers and users get it right than with catching and punishing them when they don’t.

Social Licencing

Where restrictive licencing and negative licencing are about who in particular can do what (or who has to stop doing what), social licencing, from an industry perspective, can be more about how an entire industry frames, negotiates and sustains goodwill and role acceptance in the market in which it operates and with the communities it serves.

When the ILO speaks about private employment agents playing a recognised role in a well-functioning labour market, it is making a statement about what is expected of the industry to sustain its social licencing. It has to conduct itself in a way that does fulfill that role – and avoid conduct that undermines or impedes its performance.

Think about it. Every time a spectacular failure to meet the standard is publicised on a current affairs program, the industry’s social licence takes a massive hit. Everyone in the industry (suppliers and users of employment services) suffers from it.

To work properly, social licencing needs a clear, consistent and coherent statement of standards of conduct. Broad generic standards have to be supported by clear boundary statements about what the standard requires and about what it will not accept.  It’s like stating the rules of the game, or the code by which participants are to play – and providing assurance that they will be followed and enforced.

So this is the process that the industry in Australia is going through at the moment. It’s negotiating those standards in the form of an Employment Services Industry Code (ESI Code). It’s speaking with its co-regulatory partners and with its stakeholders. It’s listening to what they have to say…

…and that’s why I’m tuning in!

  1. WA Government Review of Employment Agents Act 1976 (July 2015) http://www.commerce.wa.gov.au/sites/default/files/atoms/files/employmentagentsreview15.pdf viewed 7:10am 3/09/15 .

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