Month: October 2017

Labour Hire Licensing Acts (Qld & SA): Application to incorporated independent contractors

Andrew C Wood Contracting, Employment Agents, Employment Law, Employment Services, On-Hire, Regulation 1 Comment

Blackboard IICsWith Queensland’s Labour Hire Licensing Act 2017 set to commence on 16th April 2018, and South Australia’s even earlier on 1 March 2018, it would be worthwhile for agencies, who on-hire incorporated independent contractors, to review their contractor arrangements to see how they might be affected. 

Provider of labour hire services

It has been assumed that, in a traditional tripartite arrangement, the agency is the party who enters into a commercial arrangement to supply a worker to a client. That’s reflected in the definition of  labour hire services provider contained in s. 7 (1) of the Qld Act.

“A person (a provider) provides labour hire services if, in the course of carrying on a business, the person supplies, to another person, a worker to do work.”

South Australia’s equivalent provision is similar in its focus on the supply of a worker to another person.

Application to incorporated independent contractors

But those provisions are just as capable of applying to incorporated independent contractor entities that supply their nominated workers to the agencies, or at the agency’s direction, to the agency’s clients.

APSCo Taxonomy

These are the type of contractors that, in APSCo’s taxonomy, are referred to as “Pty Ltd Contractors” and described –

“An independent contractor that is an incorporated company, which employs an individual to perform services and supplies them to an end user client. Alternatively, a third party company may act as the incorporated entity structure (i.e. payroll service provider). The company is responsible for the individual’s superannuation, tax and any insurances (as applicable and agreed between the parties).”

 Supply terminology

A question immediately arises as to whether the pronoun, them, refers to the individual or to the services.

If the reference is to the individual, then the APSCo definition seems pretty clearly to contemplate that, in the course of carrying on its business, a Pty Ltd Contractor supplies workers to another person to perform work.

If that supply comes within the meaning of “supply” as it is used in the Act, then it would seem to follow that the Pty Ltd Contractor is a provider of labour hire services and requires to be licensed.

Risk of offence if no licence

It would also seem follow that the agency that acquires the services of a Pty Ltd Contractor may commit an offence (Person must not enter into arrangements with unlicensed providers), if the Pty Ltd Contractor does not hold a labour hire provider’s licence granted under the relevant Act and is not exempt.

If, instead of referring to the workers, the pronoun them refers to the services, it will still be necessary to examine the arrangements under which the services are performed in order to determine whether they are performed by the individual working in the end-user’s business. If that is the case, there may be a supply of a worker to the end-user and the Pty Ltd Company would need to be licensed, as would the agency.

RCSA

In RCSA’s taxonomy these workers are referred to as “On-hire Contractors (Incorporated)” and described –

“An individual independent contractor engaged as an employee of a company which is typically controlled by the same individual as a sole or joint Director. There are examples where the individual will be an employee of a larger, multiple employee, company where the company nominates a key person for the completion of the work on assignment.”

Nomination terminology

The RCSA definition of On-hire Contractors (Incorporated) does not use supply terminology. Instead, it uses the terminology of “nomination” often associated with one of the key tests of a genuine independent contracting relationship – namely the power to delegate.

However, it may amount to the same thing as a supply if the nomination results in an individual’s services being provided “to help the client conduct its business in the same way, or much the same way, as it would through an employee”.[i]

Risk of offence

In that case, the incorporated entity, in the course of its business, is likely to be supplying its nominated person to the end user and therefore required to be licensed.

Once again, there would be a similar risk of committing the offence if the agency secures the services of On-hire Contractors (Incorporated) that are not licensed under the Act.

Industry definitions not determinative

Of course, neither the RCSA definition nor the APSCo definition is determinative of the question that needs to be asked. They simply represent attempts, from within the industry, to describe a common work model. To that extent, they both provide useful insights that may help agencies to analyse more closely the arrangements that they have with this class of workers and determine the extent to which the licensing requirements of the Act will need to be met.

The problem stems not from the RCSA definition, nor from the APSCo definition, but rather from the largely unexplored and unintended consequences of the Acts.

Administrative consequences

If the Acts do apply in the way their coverage provisions suggest they might, the administrative consequences – understood in terms of the cost and effort of administering a scheme that requires incorporated independent contractors to be licensed – are enormous and have been greatly under estimated.

A regulatory solution

One simple solution might be to exempt this particular class of worker (or provider) by regulations made under the Acts.

However, one difficulty with the Queensland Act is that it might not be available unless the supply of a worker by the incorporated entity is not a dominant purpose of the business ordinarily carried on by it. That might not be so easy to establish, given the type of entity that we are discussing.

Need to examine contractual arrangements

One further issue, which agencies will need to look at closely, concerns the contractual arrangements that exist between the agency, the worker, and the worker’s incorporated entity.

It will be vitally important to correctly identify whether it is the agency, the worker or the worker’s incorporated entity that is providing the substantial services – be they IT services, event planning services, design services, project management services, etc – to the client.

This may not always be clear, or accurately reflected, in the documentation that exists to support those contractual arrangements – if, indeed, any documentation exists at all.

Need to examine payment “obligations” between incorporated entity and worker

Finally, given the restricted definition of worker contained in both Acts,  it may also be necessary for agencies to examine closely the arrangements between the incorporated entity and the worker, which give rise to any obligation on the part of the incorporated entity to pay the worker, in whole or in part, for the work.

In that respect, it may become important to be able to distinguish payments made by the incorporated entity to the worker for the work from shareholder dividends, trust distributions or other remuneration that is not so clearly “for the work”.

Again, there may be limited documentation – and what documentation there is between the incorporated entity and its nominee may be inaccurate or unclear. In many instances, it might not be the sort of documentation that would usually be provided to agencies – though there may now be some incentive to ask for it!

Time is running

These are just some of the issues that agencies who work in this space will need to consider and resolve in the six months or so that remain before the legislation commences.

Given the number of contractors potentially involved and the variety of the arrangements under which they may work, that is not a very long time.

 

Andrew C. Wood

 

 

[i] For a discussion of this point see Wood, AC,  H.R. & Recruiters’ Casebook,  Lessons for Labour Hire Providers: JP Property Services Pty Ltd v Chief Commissioner of State Revenue (2017) 21 October 2017 https://recruiterscasebook.com/2017/10/21/lessons-for-labour-hire-providers-jp-property-services-pty-ltd-v-chief-commissioner-of-state-revenue-2017/

 

JJ Richards & Sons Pty Ltd admits it’s time to take out the garbage.

Andrew C Wood Consumer Protection, Contract, Employment Services Agreements 1 Comment

Last month, I wrote that recruiters, who use standard form terms of business, might take note that the Australian Competition and Consumer Commission (ACCC) has started taking court action to enforce the unfair terms in standard form small business contracts provisions, which were introduced into the Australian Consumer Law in November last year.

One of the companies against which the ACCC took action was JJ Richards & Sons Pty Ltd, a large privately owned waste management company (JJR & Sons). ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224 (13 October 2017). The case moved forward very quickly, seemingly with JJR & Sons admirable co-operation.

On 13 October, JJR & Sons admitted that each the following terms in its standard form waste management contracts caused a significant imbalance in the parties’ rights and was not reasonably necessary to protect its legitimate interests.

  • Automatic renewal;
  • Unilateral price variation (after notice);
  • Agreed times (for waste collection – best endeavours but no liability);
  • No credit without notification (JJR & Sons charged customers if they attended for waste collection but were unable to gain access, etc);
  • Exclusivity (customer not to engage another waste removal firm);
  • Credit terms (entitlement to suspend services with no corresponding right to withhold payment for failure to provide services);
  • Indemnity (wide ranging hold harmless provision); and
  • Termination (clause preventing customer from terminating whilst payments outstanding).

As a result, the Federal Court of Australia held that each of the impugned terms was void and imposed orders (by consent):

  • restraining JJR & Sons from relying on the impugned terms;
  • restraining JJR & Sons from using standard form contracts containing an impugned term;
  • requiring JJR & Sons to publish corrective notices;
  • requiring JJR & Sons to provide a copy of the Court’s orders to each person who was a small business that entered into one of the impugned contracts after 12 November 2016. (There were 26,000 contracts. It will be up to JJR & Sons to work out how many of them were with customers, who employed fewer than 20 persons – i.e. were “small businesses”!); and
  • requiring JJR & Sons to establish an Australian Consumer Law compliance program to be undertaken by each employee or other person involved in its business. who deals with Australian customers in order to minimise the risk of future reliance on unfair terms.

Many recruitment, contracting and staffing services providers might be aware of similar terms to those that were impugned in this case. Hopefully, they won’t be in their own terms of business because they will have taken the opportunity over the last twelve months to have them reviewed. If they haven’t, then perhaps … it’s time to take out the garbage!

Publication1

 

 

 

Andrew C. Wood

Lessons for Labour Hire Providers: JP Property Services Pty Ltd v Chief Commissioner of State Revenue (2017).

Andrew C Wood Contracting, Employment Agents, Employment Services, On-Hire, Payroll tax, Regulation 4 Comments

Queensland has passed, and South Australia is considering, labour hire licensing laws that apply to labour hire providers, who supply workers to another person to perform work.

Neither the Queensland nor the South Australian legislation develops the notion of what it means to “supply a worker”. That notion remains problematic because workers are not mere commodities that can be supplied in any ordinary sense of the word.

What has been missing from the legislative developments in Queensland and South Australia has been a detailed legal analysis of the rights that are exercised; the obligations that are triggered; and the effects that are created whenever a so-called “supply” takes place.

In this article, I draw on some of the legal analysis that has taken place when courts have tried to give meaning to similar expressions contained within payroll tax legislation.

In particular, I look at the recent New South Wales decision of JP Property Services Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 1391 (12 October 2017) and examine the extent to which the reasoning of the court in that case might provide useful insights into the direction of legal argument and the nature of the “fact sensitive enquiries” that will be necessary when applying the labour hire licensing legislation.
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