Incorporated Worker Exceptions under Australia’s Labour Hire Licensing Schemes

All this week, I’ll be publishing some commentaries on the exceptions to the labour-hire licensing schemes currently operating in Queensland, Victoria and South Australia. The commentaries are not legal advice and shouldn’t be relied on as though they were. I hope, rather, that they’ll promote some necessary discussion and further questions.

The first exception I’ll look at is the “incorporated worker exception”.

Legislative Background

All three jurisdictions eventually got around to realising that incorporated workers – the on-hired workers, who contract through their own small companies (incorporated worker entities or “IWEs”) – would have had needed licences themselves if an exception had not been created for the worker entities. That’s because IWEs supply their individual workers to perform the contracted work for another person (the Host); and in most cases, they perform that work in and as part of the host’s business or undertaking, bringing their IWEs within the standard labour-hire provider definition – and, in Victoria, within the contractor manager extension as well.

That meant that the IWEs needed a licence and that labour-hire agencies, who engaged and on-hired them, would have been dealing with unlicensed providers as acquirers of the IWEs’ labour-hire services; or would have been acting as supply intermediaries in a chain of supply involving unlicensed IWE suppliers.

Either way, the fines and penalties would have been severe, and the administrative and cost burden placed on the labour hire licensing schemes would have been massive.

So, Queensland and Victoria both created regulatory exceptions.

South Australia failed to make any regulations other than to set fees before the ALP government left office. So, in South Australia, the exception had to be created by administrative decree under section 46 of the Labour Hire Licensing Act 2017 (SA). The decree was published in the South Australian Government Gazette on 18 July 2019.

The exceptions are not identical.

Queensland

Queensland created its exemption under reg 4(1)(b) of its Regulations as an exception to the definition of a “worker”. If an individual is not a “worker” for a provider, it follows that it would not be an offence for an unlicensed person to supply that individual. It’s a bit indirect, but it works – that is if you don’t look too closely at the definition of provider!

In Queensland,  an individual is not a “worker” for a provider if the provider is a  corporation and the individual is an executive officer of the corporation and is the only individual the provider supplies, in the course of carrying on a business, to another person to do work.

Executive Officer is defined in the Act to mean “any person, by whatever name called and whether or not the person is a director of the corporation, who is concerned, or takes part, in the management of the corporation”.

The formulation of this exception appears to confine its operation to workers of IWEs that only ever supply the one worker and the worker is an executive officer. This seems to make its application to genuine independent contracting arrangements problematic to the extent that it curtails the ability of the IWE or the worker to delegate the performance of the work. If delegation is involved, it might be necessary for the IWE to hold a licence.

Victoria

Victoria similarly created its exception under reg 4(1)(c) of its Regulations as an exception to the definition of a “worker”. Again, if an individual is not a “worker” for a person, it follows that it would not be an offence for an unlicensed provider to supply that individual. That would be so regardless of whether the supplier were the IWE or a labour-hire provider acting as an intermediary.

In Victoria, an individual is not a “worker” for a provider if the provider is a corporation with no more than two directors and the individual whom the provider provides to another person to do work is a director who participates in the management of the corporation or shares in its profits.

Ambiguity

The provision is ambiguous. On one reading, the individual must be a director, who either participates in management or shares in profits.

On an alternative reading, the individual must be either:

  • a director who participates in management, or
  • any other person who shares in profits.

A few well-placed commas and some distributive drafting might have added clarity! You can probably see how the alternative reading could support creative avoidance arrangements – possibly using employee share schemes or something similar.

Avoidance is a serious offence. I’d, therefore, be inclined to play safe and adopt the former, more conservative reading.

To be exempt under this provision, the individual should be a director. It should not be enough merely to be a shareholder or other person who shares in profits.

South Australia

South Australia created its exception by an administrative decree published in its Government Gazette.

Unlike Queensland and Victoria, South Australia created a direct exemption in favour of the IWE from the need to be licensed under section 11 of the SA Act.

The exemption applies if the IWE is a body corporate with no more than two directors and the person provided by the body corporate to do the work is a director of the body corporate who participates in the management of the body corporate or shares in its profits.

Apart from the fact that the exemption is directly in favour of the IWE, the provision is similar to the one in Victoria and is affected by the same ambiguity.  Prudence again suggests that the exemption should only be relied on if the individual who performs the work is a director who is either active in management or shares in the profits.

As a double assurance, the SA Commissioner also granted an exemption from the operation of section 12 of the Act (no acquisition from an unlicensed provider) to any person (i.e. a host or intermediary) who enters into an arrangement for the provision of labour-hire services with an exempted provider.

Managing the exemption

If you are a provider who on-hires IWEs (or are caught by the extended operation of s. 8 of the Victorian scheme), there are several things that you will probably need to think carefully about.

  1. You probably need to know and monitor the structure, management, and profit-sharing arrangements of your IWEs.
  2. You might want to contract with IWEs on terms that require disclosure of any changes in their structure, management, or profit-sharing arrangements.
  3. You might want advance notice of any intended change because it may be too late and the damage may already have been done if a change results in loss of exempt status.
  4. Finally, you might be wondering if you can structure your operation to supply only individual workers who are exempt through the IWE exceptions. Personally, I’d steer clear of such an arrangement; and, if a provider told me that they didn’t need a licence because they only ever supply exempt workers, I’d be asking lots of questions! I’d encourage you to do the same.

It should be apparent that the exception comes with a few traps and pitfalls. Those will eventually be sorted out when courts are called upon to interpret the legislation. But unless you want the glory of seeing your name in the law reports, this is one area where you should play safe and seek advice from a legal practitioner, who is familiar with this area of law.

In the meantime, I hope this commentary will have helped to spark some discussion and draw some attention to the type of issues that seem likely to arise. If you’re interested, I’ll also be covering this topic and others in a series of workshops planned for August through to October 2019, when the Victorian scheme comes into full operation.

29/07/19

Andrew C. Wood

 

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