Qld’s Labour Hire Licensing Scheme: the “incorporated worker exception” – pass or fail?

Pass or Fail

This is the second in a series of posts in which I examine the detail of the worker exceptions created by reg. 4 of Queensland’s Labour Hire Licensing Regulation 2018. In this post, I look at the “incorporated worker” exemption in reg. 4(1)(b) and invite you to consider whether it should be given a “pass” or “fail”.

Some background

In October last year, and in commentary about the coverage of the Act, I drew attention to the difficulties posed for micro-business, incorporated independent contractors. The specific difficulty that I foresaw was that, if the incorporated entity supplied its worker to another person to do work, then it would need a licence.

The issue was taken up in submissions to government about the content of the regulations; and specifically about whether an exemption from the need to hold a licence could be carved out, using the power granted under s. 8(2) of the Act to exclude classes of individuals from the definition of worker.

Such an exemption was possible on the basis that, if the provider supplied persons, who were not workers within the meaning of the Act, it followed that the provider did not provide labour hire services and therefore did not need a licence.

An exemption would have relieved hundreds, perhaps thousands, of small “incorporated workers”, who operate through their own corporate entities, from the need to hold a labour hire licence.

To its credit, the Government does seem to have accepted those submissions in part.

However, in my opinion, the incorporated worker exception created by regulation 4(1)(b) of Queensland’s Labour Hire Licensing Regulation 2018 is so narrow that it will not provide the relief most were hoping for; and may end up disadvantaging many incorporated workers and adding to an already excessive red tape burden.

The incorporated worker exception

Regulation 4(1) sets out four classes of individuals, who are excluded from the definition of worker under s.8.  Paragraph (b) of that regulation establishes the “incorporated worker” exception in terms:

(b) for a provider who is a corporation—an individual who is an executive officer of the corporation and the only individual the provider supplies, in the course of carrying on a business, to another person to do work;

Three key points

Three key points need to be noted about this provision.

Firstly, the exception, applies to a corporation that is (or, but for the exception, would be) a provider – i.e. the corporation that, in the course of carrying on a business, supplies, to another person, a worker to do work.

Secondly, for the individual to qualify for the exception, and for the provider to rely on the exception as a means of avoiding the need to hold a licence, the provider must supply only that individual and no other individual. If the corporation supplies another person, it will need a licence.

Note that the expression used is individual and not worker. That will mean that the exception cannot rely on the other reg.4 exceptions to reduce the number of supplied persons to one.

For example: You could not get around the one person requirement by saying, “Well, I do supply another person; but that person is not a “worker”, because I pay them annual wages above the high-income threshold”.

Thirdly, the individual, who is supplied, must be an executive officer of the corporation.

Who is an “executive officer”

An 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.

One-person corporations

So, we are really talking about a one-person corporation – or an “incorporated worker”.

These are the workers that are sometimes called “On-hired Contractors (Incorporated)” or “Pty Ltd Contractors”.

The exception does not apply to partnerships or to other unincorporated businesses; and it is not targeted at labour hire providers, who may be supplying more than one individual to perform work.

Is there a problem?

Yes.

One of the key indicators of a genuine independent contracting relationship is the ability for the contractor to delegate the work.

The one-person requirement means that the incorporated provider no longer has the power to delegate, because delegation would involve supplying a second individual to do the work.

Neither could the provider merely substitute another individual to do the work, because that also would involve supplying a second person.

Two problems flow from that.

  1. The inability to delegate, or substitute, may greatly impede the capacity to perform the work – especially if the work involves roster or “on duty” cover arrangements, where professional and skilled trade workers may “stand in” for each other from time to time.
  2. Removal of the power to delegate or substitute may result in the so-called “corporate veil” wearing so thin that incorporation may cease to offer much protection from liability and allegations of sham contracting.

Pass or fail?

Whilst the exception might assist some small incorporated contractors, it may prove to be too restrictive, and to be attended by too much risk, to be attractive as an escape route from the need to hold a licence.

At the same time, the exception will create a headache for non-exempt labour hire providers, because there may be a cohort of individuals, within their on-hire workforces, who are not workers and are therefore not to be included in the provider’s reports under s.31 of the Act. For those providers, the exception will only add to their already excessive red tape burden.

At the moment, and in its present form, I’d have to give it a fail.

What do you think?

Andrew C. Wood

Queensland’s Labour Hire Licensing Scheme: Regulatory exceptions to “worker” definition open a can of worms.

Just days before its labour hire licensing scheme was due to start, Queensland finally released its labour hire licensing regulations. Although it consulted briefly on the content of the regulations, it did not consult on the drafting. That is a pity because some agencies are now looking at the regulatory exceptions to the definition of worker that are set out in regulation 4 and wondering if they are excused from the need to hold a licence.

In my opinion, opting not to seek a licence on the basis of a regulation 4 exception is a high-risk strategy. It is one that I doubt many risk-averse clients would be prepared to buy into – especially in view the high penalties and prison sentences that apply to dealing with an unlicensed provider.

This is the first of a series of posts in which I will break down the exceptions and show why they need to be handled with care.  In this post, we will look in detail at the high-income employee exception.

Subsequent posts will examine:

  • the “incorporated worker” exception;
  • the “secondee” exception; and
  • the “internal labour hire” exception.

Some basics

First, let’s look at the basic structure of the legislative scheme that leads to regulatory exceptions being created.

  1. Section 10 of Queensland’s Labour Hire Licensing Act 2017 (“LHLA(Q)”) makes it an offence to provide labour hire services without a licence.
  2. Section 11 of the LHLA(Q) makes it an offence to acquire labour hire services from an unlicensed provider.
  3. These provisions depend heavily on the definitions of provider, labour hire services and worker.
  4. They also depend heavily on the definition of supply; but there is no definition for that. We will have to wait for the courts to tell us what supply means.
  5. However, section 7(1) of the LHLA(Q) sets up the definitions of provider and labour hire services.
  6. A provider is a person, who provides labour hire services.
  7. A person provides labour hire services if, in the course of carrying on a business, the person supplies, to another person, a worker to do work.
  8. Section 8 of the LHLA(Q) defines the term, worker.
  9. An individual is a worker for a provider if the individual enters into an arrangement with the provider under which—
    • the provider may supply, to another person, the individual to do work; AND
    • the provider is obliged to pay the worker, in whole or part, for the work.
  10. However, an individual is not a worker if the individual is, or is of a class of individual, prescribed by regulation. So, we must turn to the regulations.
  11. Regulation 4 of Queensland’s Labour Hire Licensing Regulation 2018 (“the Regulations”) sets out four classes of individuals, who are excepted from the s.8 definition of worker.
  12. Those individuals are not workers.
  13. Because they are not workers, if the provider ONLY supplies those classes of individuals, then it has not supplied a worker and it should not need a licence – i.e. it has not provided labour hire services. That is because labour hire services necessarily involve the supply of a worker.
  14. If the provider supplies (or ever wants to supply) other classes of individuals, who are workers, then it will need a licence.
  15. If the provider supplies individuals, whom it thinks are not workers (but who really are workers because they are not exempt) and it did not have a licence, then it will have breached the prohibition against supplying labour hire services without a licence; AND its client will likely have breached the prohibition against acquiring labour hire services from an unlicensed provider.
  16. Now a provider might already have a licence, because it has wanted to supply (non-exempt) workers.
  17. When it gets to reporting time, it will need to distinguish its non-exempt workers from its exempt workers, because many of its s.31 and s.32 reporting obligations relate only to workers (as defined) – i.e. non-exempt workers.
  18. So, to manage all this, providers need to have a thorough understanding of the scope of the Regulation 4 exceptions – and they are not as straight forward or benign as they might first appear!
  19. Additionally, clients of providers need to have a high degree of confidence in their providers’ ability to work through the detail of the exception on which they are relying and to get it right!

The “high income employee” exception

Let’s break the high-income employee exception down and examine it with some interposed commentary in which I’ll make observations and pose a few questions for you to consider if you’re thinking about relying on this exception. Here it is, taken from regulation 4:

4. Individuals who are not workers—Act , s 8 

  1.  For section 8 (2) of the Act, the following individuals are prescribed—

   (a)  an individual employed by a provider—

The exception relates only to individuals, who are employed by a provider:

  • What if you are on-hiring an incorporated worker – the entity, rather than the individual?
  • What if the individual is employed by someone else and you are merely an intermediary as contemplated by LHLA(Q) s. 7(2)?
  • What if the individual is not employed; but is an independent contractor of yours, or works in some other capacity?

(i)  whose annual wages are equal to or more than the amount of the high-income threshold under the Fair Work Act 2009 (Cwlth), section 333; and

The threshold is set by reference to an amount of annual wages.

There are no pro rating provisions in the Regulations. The Regulations have only borrowed the threshold figure from s.333 of the Fair Work Act. They have not borrowed any of the FWA provisions that apply the threshold to part time work, or to work for a period of less than a year as a rate of earnings.

In any event, it turns out that wages are different from earnings, which is the expression used for the high-income threshold provisions of the Fair Work Act.

Although the term, annual wages is not defined, the term wages is. It has the meaning given in the Workers’ Compensation and Rehabilitation Act 2003 (Qld).

  • What if your worker does not receive wages; but receives a distribution from a discretionary trust or partnership; or directors fees or dividends from an incorporated entity?
  • What if your worker receives wages from other employers?
  • Do you have the means to investigate those matters?

Wages and earnings include and exclude different things. For example,

  • wages include overtime payments; earnings don’t – unless the overtime is “guaranteed”.
  • wages exclude compulsory superannuation; earnings include it.
  • wages exclude the value of non-monetary benefits; earnings include it.

There are other important disparities between the two expressions.

You might have a worker, who has the benefit of a high-income guarantee under the FWA; but who fails to meet the annual wages threshold under the Regulations; and vice versa.

  • Have you identified all the components of annual wages that need to be taken into account or excluded in order to determine whether the annual wages threshold applies to each of your workers?
  • Can you adjust for any allowances that are not expressly excluded by the Workers’ Compensation and Rehabilitation Act 2003 (Qld)? Do you know what they are?
  • Can you say how the annual wages threshold applies at any given point in time before year end in relation to:
    • a part-time employee with agreed hours?
    • a part time employee with no agreed hours?
    • an employee receiving (or entitled to) overtime?
  • Can you make an accurate conversion from the annual wages threshold to the hourly rate you are paying your worker (especially if you have structured it as an all-in rate)?
  • Do you do your conversion on the basis of a 38 hour week, or on some other basis – e.g. the hours actually worked?
  • How do you account for commissions, incentives and bonuses (both discretionary and non-discretionary)?

(ii)  other than under an industrial instrument under the Industrial Relations Act 2016 or a modern award or enterprise agreement under the Fair Work Act 2009 (Cwlth).

Employees, who are employed under any of these instruments do not fall within the range of the regulatory exception. So,

  • Does employment in circumstances where a “jump up” clause applies to the employment constitute being employed under such an instrument?
  • Have you accounted for the range of professional awards that may apply to the employment? Some of the Modern Awards for professionals and other high income occupations or classifications that could bear upon your calculations could be:
    • Health Professionals and Support Services Award 2010
    • Higher Education Industry—Academic Staff—Award 2010
    • Medical Practitioners Award 2010
    • Nurses Award 2010
    • Professional Diving Industry (Industrial) Award 2010
    • Professional Employees Award 2010

There are others.

As you will quickly see, the failure to deal with these matters by including proper machinery provisions in the regulations has left providers (and their clients) dangerously exposed, if they choose to rely on them.In many cases, they will create false comfort and only the illusion of exemption.

Safe to assume?

Is it safe to assume that the Queensland Government would apply the machinery provisions of the Fair Work Act in order to make some sense of all this?

It might try to. It might even say that it intended to. But, in my opinion, the drafting of this regulation has not lived up to the intent. One can’t put in what the Government left out!

Common sense?

Is it safe to assume that a Court would adopt a “common sense” view of the Regulations and “write in” all the missing features that might help get a labour hire provider “across the line”?

In my opinion, it is not. It is more likely that a Court would say that the Regulation, in its current form, lacks the necessary machinery to make it fully workable. In that respect, legislative drafting is a bit like software coding – there might have been a lot of common sense in having something included; but unless it has been written into the program, it’s not going to work as intended.

A “commercial” approach?

Is it safe to assume that clients will accept an unlicensed provider’s (self-serving) interpretation of the Regulations; and that they will accept, without question, that every worker whom the provider on-hires – whether to that client or someone else – receives the annual wages threshold, such that the provider does not need a licence?

I doubt it.

What’s more, I doubt that it’s terribly “commercial” for a provider to place itself on a path, where it can only ever supply exempt workers; and set itself up to have to jump through the application hoops sometime down the track, when it does want to supply a non-exempt worker, and has to explain to the regulator how it’s been operating up to that point.

I doubt that clients, who are sophisticated enough to require the services of high-income employees will consider it an attractive commercial proposition to seek supply from an unlicensed provider, when there are properly licensed providers in the market.

And I don’t know how “commercial” it will be for national and inter-state providers to rely on an exemption that only operates in Queensland and not in South Australia.

It looks to me like the regulatory exception for employees, who earn above the high-income wages threshold does little more than open a can of worms.

What do you think?

CAN OF WORMS 1

 

 

Andrew C. Wood

Independent contractors & incorporated workers: Hair-splitting, fact sensitive inquiries needed under new labour hire licensing laws

The position of independent contractors and incorporated workers under Queensland’s and South Australia’s new labour hire licensing laws is complex and warrants closer attention than it has received to date. Detailed, fact sensitive inquiries into supply arrangements are required; and there will be a lot of “hair-splitting” between now and the time, when these laws are eventually interpreted by the courts.

In this post, I’ll try to explain why; and highlight some of the issues that staffing agencies will need to consider if they are on-hiring independent contractors in either State and need to get on top of the new laws.

Different approaches

First off, there is a difference in approach between Queensland and South Australia – at the moment, at least. That may change, when Queensland finally gets round to making its regulations.

The difference in approach arises not so much from the definition of “worker”, which is essentially the same in both States, as from the way in which the two States have captured the type of supply that is considered to be a supply of labour hire services.

In Queensland, a person provides labour hire services if the person supplies a worker to do work for another person. That casts a very wide net. Queensland has not yet tried to explain what “supplies” means, or to qualify it in any way. It may do so in its regulations, which are yet to be published.

In South Australia, a person provides labour hire services if the person supplies a worker to do work for another person in and as part of that other person’s business or commercial undertaking.

The addition of those words is what makes the difference.

South Australia has been trying, with limited success, to explain what that means and has produced what has been described as quite possibly the longest explanatory note in any Act of Parliament – albeit a note that has virtually no legal effect!

South Australia’s use of the “integration test”

The integration test is most often used as a test to distinguish employees from independent contractors. An employee, and the work that an employee performs, is understood as being integrated into the employer’s business. It is performed in and as part of the employer’s business.

However, South Australia seems to be trying to use a form of the integration test (work is performed in and as part of the client’s business) to distinguish its concept of labour hire from a general contracting situation, where a worker performs the work in and as part of a different business (e.g, the plumbing business of a plumbing worker’s employer), or the worker’s own business (e.g. an I.T contractor’s own I.T. business).

The “plumber” example given in s.7 of the South Australian Act was its first attempt to explain what it has been trying to do.

The “plumber” example

Guy runs a plumbing business and has an employment contract with Tracey under which Tracey is paid to come to work each day at the plumbing business and be assigned work. Corey runs a grape growing business at which there is a problem with the plumbing. Corey enters into a contract with Guy to diagnose and fix the problem at the business and so Guy sends Tracey to Corey’s grape growing business to do the work. Guy does not provide labour hire services in sending Tracey to do work at Corey’s business.

The reason why Guy does not provide labour hire services is that Tracey performs the plumbing work in and as part of Guy’s plumbing business; not in or as part of Corey’s grape growing business.

The additional examples given on the South Australian website also go some way towards explaining what that State is trying to do. The I.T. examples may be helpful.

South Australia’s I.T. examples

A large retailer contacts an IT recruitment agency, requesting fulltime IT support for a big project. An IT consultant is provided to the retailer for 6 months. The consultant is paid by the recruitment agency and the retailer pays the recruitment agency directly. These IT consultants are part of the retailer’s work force for the 6 month contract and therefore the recruitment agency would need to be licensed.

Compare that with the example of where a licence is NOT needed in South Australia:

A law firm contacts an IT company about setting up their IT systems. After several discussions, the IT company is contracted to set up the law firms systems. The IT company uses its own IT consultants for 2 weeks. The IT company invoices the law firm at the conclusion of the work. These IT consultants are providing a specific service to the law firm under the direction of the IT company, as IT company employees.

Challenges posed

There are several difficulties with the South Australian examples of situations where a labour hire licence is not needed, in my view.

Supply through a staffing agency

The South Australian examples do not deal with a situation, where the worker is engaged or supplied through a staffing agency.

  • Tracey is simply the direct employee of a plumbing company.
  • The IT consultants are simply the direct employees (or independent contractors) of an I.T. company.
  • No example is given of a case, where Tracey is engaged as an independent contractor through a firm that is not a plumbing company, but is a staffing agency of some description.
  • No example is given of a case, where an I.T. consultant is engaged as an independent contractor and supplied through a staffing agency.

Those are serious omissions, because the examples given fail to address, directly, the very question that is most likely to be of concern to staffing agencies and to the workers and clients, who deal with them.

Can an independent contractor ever be supplied in the sense required by the S.A. Act?

On one view, a genuine independent contractor can never be “supplied” in the sense required by s.7 of the South Australian LHL Act, because a genuine independent contractor, acting as such, performs the work in and as part of his/her own business.

That presents South Australia with a problem, because it sets up an apparent inconsistency with LHLA(SA) ss. 7(3), which says that a person provides labour hire services “regardless of whether the worker is an employee”.

If that is supposed to indicate that independent contractors are included, you’ll immediately see how the problem arises. How can an independent contractor, who performs work in and as part of the worker’s own business, simultaneously perform the same work in and as part of someone else’s business?

South Australia appears to be trying to get around that inconsistency by saying  (in its I.T. consultant example) that integration into the customer’s work force, as distinct from integration into its business or commercial undertaking, might be enough.

To that extent, it could be trying to equate a work force to a business or commercial undertaking. Though that would be tricky because it may look, to some, like an attempt to stretch the meaning of the Act.

No example of supply of an incorporated worker

Neither do the examples deal with a case, where the worker is what in the UK is called, an incorporated worker.

RCSA calls these workers, On-hired Contractors (Incorporated). APSCo_AU calls them Pty Ltd Contractors.

What they’re called doesn’t matter so much as what they do; and how they structure themselves to do it.

  • In this instance, one has to look closely at the relationship between the worker, the worker’s incorporated entity and the staffing firm.
  • These relationships are set out in Fig. 1. below.

Pty Ltd Contractor Diagram

The arrangements between

  • labour hire agency, incorporated entity & principal (worker); and
  • incorporated entity, worker (principal) and labour hire client –

exhibit the triangular relationship, which the LHLA(SA) & explanatory materials identify as a “labour-hire” relationship.

This is so, regardless of any contractual relationship between the incorporated entity, the worker, and the labour hire client; and regardless of the intermediation of the labour hire agency – see ss.7(3)(b) and (c) of the LHLA(SA).

It therefore seems possible that, in some cases, both the staffing firm and worker’s incorporated entity may be involved in supplying the worker to the client to perform the work; and both may require a licence if, as a matter of fact, the work is performed in and as part of the client’s business or commercial undertaking.

Queensland

Although a late starter in addressing the shortcomings of its ambitious coverage, Queensland is starting to address the issue and has conducted a consultation about the exceptions that might be provided by its regulations. That consultation has now closed and we  await the outcome with interest.

However, it’s worth noting that Queensland is actively considering a limited exemption for those cases where the worker is a director or owner of their own business. That might not let the staffing agencies off the hook, if they’re on-hiring these owner/operator workers (incorporated workers); but it may provide some respite for the worker’s incorporated entities. And that would be welcome.

Of course, it begs the questions: “If Queensland is now thinking about the need for such an exemption, why has South Australia not dealt with it”; and “Are we yet to see more elements of the South Australian scheme unfold?”

So, it’s a case of wait and see. Hopefully, we’ll know the outcome well in advance of Queensland’s 16 April 2018 kick off, because the transition period is only 60 days.

What staffing agencies might now have to consider

The type of issues that staffing agencies might now have to consider in each case include:

How the worker is engaged and paid by his/her own incorporated entity

  • Is the worker engaged as an employee or as an independent contractor of his/her incorporated entity?
  • Is the worker paid for the work; or does the money reach the worker by some other means?
    • Does the worker work as a director and get paid a director’s fee?
    • Does the worker receive dividends as a shareholder, or distributions under a trust, instead?

Who the staffing agency contracts to provide the services (e.g.  I.T services)

  • Is it the staffing agency itself?
    • That is to say is the “staffing agency” really a services (e.g. IT services, engineering services, nursing services, cleaning services, fruit harvesting services…etc)  contracting company?
    • If so, does the “staffing agency” need a licence at all?
    • Even it it does not need a licence, does any sub-contractor, who supplies a worker to it need a licence?
    • If it has positioned itself as a services contractor, rather than as labour hire provider, is the attempted positioning borne out by the reality of the situation?
  • Is it the worker’s company; or the individual worker? The staffing agency needs to look closely at its method of engagement for this.
    •  Some methods engage only the worker’s entity and leave it to the worker’s company to secure the attendance and performance of the worker. These methods are probably more consistent with the notion that the worker is performing the work in and as part of the workers own business.
    • Some methods engage both the worker’s entity and the worker.  These may be more likely to tend towards a labour hire supply of the worker by the staffing agency. That is because the staffing agency will have an arrangement with the individual, who performs the work that may make the individual a worker of the staffing agency.
    • Some methods have only the worker as the services provider. The worker’s entity may act as a type of service entity or contract manager for the worker – handling payroll, the worker’s engagements and expenses, and co-ordinating arrangements between the staffing agency and the worker. These are more likely to involve both the staffing agency and the worker’s entity in a labour hire supply – in which case both may need a licence.

How  the worker operates when at work

This is going to require staffing firms to have a good grasp of the composition and structure of their clients’ work forces.

  • Do you know the boundaries of your clients’ work forces; or even how they are established?
  • Think about it. How many separate work forces might work at a hospital or community health service? Are they all business or commercial undertakings? Might some of them be operating under non-business or non-commercial government or NFP programs? Would that exclude them from the South Australian coverage?

Fact sensitive investigations likely to be needed

Unless South Australia creates a regulatory or administrative exemption for incorporated workers, staffing agencies are going to have to conduct fact sensitive investigations into the arrangements, which they have with their incorporated workers and into the arrangements; which those workers have with their own companies.

Essentially, that involves a hair-splitting, case-by-case investigation in which the staffing agency would examine its own documentation and also examine the documentation of the arrangements that exist between the worker and his/her own company.

My guess is that, in many cases, that documentation will be scanty or ambiguous.

They are also going to have to undertake fact sensitive investigations into the structure and composition of their client’s businesses, commercial undertakings (and work forces) to work out if the individual workers are integrated into any of them – i.e. whether they are supplied in the sense that they perform their work in and as part of those businesses, commercial undertakings, or work forces.

And they are going to have to make judgements about whether the work forces that their workers augment have the necessary business or commercial character.

All of that might not be as easy as it sounds. (Did it sound easy?)

In the JP Property Services Case, it required a Supreme Court decision to determine whether after hours cleaners were integrated into the workforce of  the supermarket, where they worked. The Court held that they were not, because they worked after hours. The result would have been different if they had worked to augment the supermarket’s cleaning workforce during business hours – cleaning up spillages etc!

That’s what I mean by “fact sensitive inquiries”. That’s the level of “hair-splitting” that will be required to make sense and apply these laws.

As a lawyer, I can look forward, with professional interest, to the type of arguments that will be had; but I don’t envy the businesses or the workers, who are going to have them and will now have to carry the burden of a legislative scheme that shows the signs of having been rushed and poorly thought through in the detail of its application.

Man with Magnifying Glass (2)

 

Andrew C. Wood

 

Qld Treasury Consultation Papers on Regulations to Support Labour Hire Licensing Act: Quick Observations

Queensland Treasury has just released two consultation papers on the regulations to support that State’s Labour Hire Licensing Act 2017.

One paper deals with operational issues (including the fit and proper person test and reporting); the other is about coverage and exclusions.

Looks like there needs to be some work done; and that an attempt will be made to resolve with policy what can’t be resolved by regulations.

Coverage problems are now surfacing; and the consultation papers are still strangely silent on anything much to do with licence conditions.

Licence fees range between $1,000 and $5,000.

Reporting requirements may be expanded – but, it would be a good idea to start with a clear statement of why the government needs additional (including confidential) information; how it proposes to handle it; and what it proposes to do with it.

Some regulatory solutions to the challenges posed by a hastily assembled Act seem possible; but they will not be easy to achieve. Internal labour hire within corporate groups is proving to be “particularly problematic”, as the government tries to work itself out of a tight corner.

Submissions are due by 2 February 2018.

You can read about the release and find the consultation papers here.

https://www.treasury.qld.gov.au/fair-and-safe-work/industrial-relations/regulation-labour-hire-industry/consultation-labour-hire-licensing-act/

Businessman & Newspaper

Andrew C. Wood

Will your outsourced payroll arrangements alter your requirements to have a labour hire license? Probably not.

As attempts by Australia’s labor states to create a multi-jurisdiction, labour hire licensing scheme gain critical mass, it is becoming more important, and perhaps a little easier, to make comparisons and ask questions at a practical level rather than merely at a policy or ideological level.

One such question, which seems to be causing concern amongst industry participants, relates to the involvement of payroll providers in labour hire arrangements. Kudos, therefore, to the industry participants, who have appreciated the detail and complexity of the legislation well enough to formulate the following question:

Will our outsourced payroll arrangements alter our requirements to have a labour hire license?

The answer is, “Probably not”.

Let’s say you provide labour hire services – i.e. you engage a worker and supply that worker to another person (a host) to do work.

Your engagement of that worker creates an obligation – and it’s your obligation – to pay your worker for her or his work. You can’t escape that obligation by entering into a pay-when-paid-by-client arrangement. And, importantly, you can’t escape it by outsourcing your payroll function to a third-party payroll provider. It’s still your source obligation; and it is sourced in the work/wage or work/remuneration bargain that you made with your worker.

Neither, in most cases, can you transfer your worker to the payroll company. As the High Court has reminded us:

No worker is an asset in the employer’s balance sheet to be bought or sold.

So, whilst ever you continue to engage the worker, you have a payment obligation – even if a payroll company is going to perform it for you.

Now, I’ve heard it suggested from time to time, that terms and conditions of appointment of a payroll provider often attempt to shift responsibility for engaging the worker onto the payroll provider. They might say something like:

 You, the payroll provider, agree that you employ the worker and are responsible for all employer obligations.

In my opinion, you will have to be especially careful if your terms of business say anything like that – and that’s so regardless of whether you are the payroll provider or the labour hire provider.

The work/wage or work/remuneration bargain is made between the engager and the worker. It’s not something that you can transfer on paper – even if you have a paper consent from the worker and payroll provider – because the paper transfer and consent might not reflect the reality of the situation if it’s actually you, who continue to supply the worker to your client and are getting paid for it.

Even though there may be some very limited circumstances in which you could successfully transfer a worker’s engagement to a payroll company, it may still be important for you to ensure that you have a licence.

Remember, you can’t transfer a worker whom you haven’t first engaged. How did the worker become engaged with you in the first place? Did you advertise, or hold out that you were willing to provide labour hire services? Under all three state schemes, you must not advertise or hold yourself out as willing to provide labour hire services unless you have a licence that is in force.

If your attempt to appoint a payroll provider is designed to circumvent or avoid an obligation imposed upon you by the labour hire licensing legislation, you may also have committed an avoidance offence. Your client, and indeed your payroll provider, may be obligated to report the attempt as an avoidance arrangement under the reporting provisions of the legislation.

If you DO successfully transfer the worker to the payroll company, remember:

  • It’s probably not just the payroll function that you have transferred – it’s likely to be pretty much the whole show; and it might be difficult to know what your client will be paying you for.

Ask yourself: Are you still providing what you agreed with your client you would provide? If you’re no longer providing what you agreed with your client to provide, you might find that your agreement with your client (including its terms and conditions) will be swept aside by a court, as happened in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd.[i]

  • Perhaps you’re being paid a type of pay-as-you-go placement fee and you’re really acting in the role of a private employment agent (PEA) providing placement services.

Ask yourself: Do your terms of business support that characterization of your arrangement; and do they accurately reflect the arrangement?

  • Even if that is the case, you may still require a labour hire license if, as a PEA, you are doing anything more than merely providing a recruitment or placement service.

For example: If you are arranging safety inductions, PPE,  accommodation,  transport, message handling to coordinate worker attendance at the worksite etc, you will not have the benefit of the private employment agent exception under the Queensland and South Australian legislation; and you may be caught by the extended coverage provisions in the Victorian legislation that relate to PEA’s, who arrange accommodation; or Contractor Management Companies, who recruit and place independent contractors.

  • You may also require a PEA licence in those states and territories that still have them.

Ask yourself: Do you need and do you have a PEA licence?

  • Your arrangement is likely to convert the payroll provider into a labour hire provider if the payroll provider now has to supply the worker to the user or “host”.

Ask yourself: Does your payroll provider have a labour hire licence? If not, you may need to consider whether you have an ancillary liability arising from placing workers with unlicensed labour hire providers. The ancillary liability penalties can be as severe as those imposed upon the principal offender.

  • You may have made a type of split placement – i.e. you have placed the worker operationally with the host, but administratively with the payroll provider. In doing so, you may have implicated your client in the offence of dealing with an unlicensed labour hire provider if either you or your payroll providers are unlicensed.

If your attempt to transfer the worker to the payroll company was NOT effective, – and there may be a number of reasons why it will not be effective – then you would clearly remain the labour hire provider. You will need a licence – even though the payroll provider is paying the worker.

The interactions between payroll arrangements and the coverage and avoidance provisions of the labour hire licensing legislation are complex and are affected by nuances in definitions, exclusions and extensions. That will mean that payroll providers (and labour hire providers) will need to exercise special care to understand the effects of a transfer of payroll responsibility from a labour hire provider. They will need to be thoroughly familiar with the legislation and will need to scrutinize the terms and conditions upon which the transfer of payroll responsibility takes place.

But wait! There’s more…

So far, we’ve only been discussing the situation where a labour hire provider appoints a payroll provider. There’s also the possibility that the payroll provider might be appointed by the client (host) or even by the worker. There’s the additional possibility that the payroll provider is, in fact, the worker’s own incorporated entity. That’s a whole other story!

Teacher 3

 

 

Andrew C. Wood

 

[i] [2015] FCAFC 37 per North and Bromberg JJ at [paras 215 to 218].

This is an opinion piece intended to promote public discussion. It is not, and should not be relied on as legal advice. If you do want legal advice, please seek it from a lawyer, who is familiar your industry and with the laws that apply in the jurisdictions where you carry on business. Your industry associations or local Law Societies may be able to help you to find professional legal advisors, who can assist you.

 

Victoria Introduces its Labour Hire Licensing Bill 2017…and cracks are starting to show.

Victoria’s Labour Hire Licensing Bill 2017, introduced into State Parliament on 13 December, is the third labour hire licensing scheme introduced this year as part of a labor State push to establish a common pattern of labour hire licensing regulation.

South Australia’s Labour Hire Licensing Act 2017 is set to commence on 1 March 2018.

Queensland’s Labour Hire Licensing Act 2017 is set to commence on 16 April 2018.

Victoria’s Labour Hire Licensing Bill 2017, if it is passed, has a proposed commencement date of no later than 1 November 2019, but may be proclaimed earlier.

Despite hopes of establishing a common scheme, cracks are starting to show.

Some of the cracks may be smoothed over by regulations that have yet to be released for comment in South Australia and Queensland. Others may be smoothed over by administrative fiat in those States that are intending to create an administrative power to grant various exemptions (S.A. and Vic).

Some cracks may be smoothed over by accommodating mutual recognition arrangements; and some might only be smoothed over by legislative amendment.

Furthermore, detailed analysis of the legislative schemes reveals some glaring gaps – e.g. the failure to regulate substitutable workforce contracting services; and some apparent inconsistencies – e.g. the inconsistency created by regulating only the supply of a worker where the work is done in and as part of the host/client’s business whilst simultaneously extending the definition of worker to include independent contractors. The issue, here, is that genuine independent contractors perform their work in and as part of their own businesses.

Many of these issues will only come to light when the legislation is tested in the course of prosecutions and licence decision reviews and appeals. Nevertheless, it is worthwhile to to take note of them – especially for businesses that operate across state borders or may be relying on interstate advice – and bring them into the  field of public and industry dialogue.

A good place to start might be a side-by-side comparison of the main coverage provisions of the three state schemes – as far as we know them at this stage, without the benefit of regulations and with the Victorian Bill still awaiting its second reading debate.

So, I’ve had a go at representing some similarities and differences in table format. To do it, I’ve had to standardise some of the terminology. I’ve opted for:

Provider = the person who needs the licence;

Worker = the person who performs the work;

User = a person who takes the benefit of the supply of a worker for the performance of work.

The “user” terminology was the most difficult to arrive at. In the Queensland and South Australian Acts, this party is usually referred to as “another person”. Victoria uses the expression “host”. Both of those terms are problematic in their application to labour contracting chains, where several layers or tiers of supply are involved; and the nature of the services being supplied up the chain may switch between labour hire services and sub-contracting services before reaching the point where the work is actually performed.

I’ve therefore opted for the “user” terminology because it applies to labour contracting chains operating through intermediate users to an end user. However, to my mind, the term remains problematic because of the possibility of confusion with user models of gang-mastery that are regulated under the UK Gangmasters Licensing Act but have so far escaped attention in Australia.

Using my standardised terminology, one could say that common to all Australian schemes is the proposition that:

A person is a labour hire provider (provider) if, in the course of conducting a business, the person supplies a worker to another person (user) to do work…

At that point, the schemes begin to diverge around details of:

  • situational application – e.g.whether in and as part of the user’s business;
  • additional coverage;
  • exclusions; and
  • worker definition.

The table represents my attempt to illustrate these points of departure. To read it click  here or on the link below.

https://recruiterscasebook.files.wordpress.com/2017/12/qld_sa_vic-comp_cov.pdf

The expression, “c.f.”, where it is used in the table, indicates that a comparable outcome is achieved by slightly different means.

I’d love to learn of your thoughts and comments.

Businessman & Newspaper

 

 

Andrew C. Wood

Victoria’s Labour Hire Licensing Proposal: Any hope of an even playing field? Not much.

Victoria is the next cab off the rank with labour hire licensing. And there’s not much time to get submissions in before 6 December. Much of what is described in the consultation paper follows the now familiar pattern in Queensland and South Australia.

It is clear that Victoria is giving a bit more thought to what the exceptions might be and is seeking submissions about them. That’s an encouraging sign. But, it might be difficult to say much about the exceptions until the government reveals a working draft of its primary coverage provision.

It will be worth watching closely to see if Victoria can develop a definition of “labour hire provider” that comes to grips with the question asked in Queensland and still not answered:

“What is there to stop an unscrupulous labour hire supplier from simply re-inventing itself as an unscrupulous labour contractor?”

Judging from the consultation paper, it looks like Victoria is aiming to regulate supply forms of gangmastering/ labour hire and may ignore the substitutable use forms of gangmastering, which are common in cleaning, horticulture, trolley collection and other sectors at risk of the type of exploitation that licensing schemes are intended to prevent.

Let me explain.

The labour hire licensing schemes proposed for Queensland and South Australia prevent (for example) a farmer from dealing with a labour hire provider that employs a worker, whom it sends to the farm to work on the farm in the farm business, unless the labour hire provider has a licence.

To make this clearer, South Australia has recently introduced the following example as an amendment to the coverage provision in its Bill in order to explain what it has in mind:

Guy runs a plumbing business and has an employment contract with Tracey under which Tracey is paid to come to work each day at the plumbing business and be assigned work. Corey runs a grape growing business at which there is a problem with the plumbing. Corey enters into a contract with Guy to diagnose and fix the problem at the business and so Guy sends Tracey to Corey’s grape growing business to do the work. Guy does not provide labour hire services in sending Tracey to do work at Corey’s business.

We can all see that. But you can also see that that approach would  exclude:

Guy runs a grape harvesting business and has an employment contract with Tracey under which Tracey is paid to come to work each day to pick grapes at farms where Guy is providing harvest services. Corey runs a grape growing business at which there are grapes ready for harvesting. Corey enters into a contract with Guy to harvest the grapes and so Guy sends Tracey to Corey’s grape growing business to do the work. Guy does not provide labour hire services in sending Tracey to do work at Corey’s business.

That exclusion is significant if we are talking about a licensing scheme that is designed to prevent exploitation and even up the playing field.

It’s significant because licensing schemes that are imposed solely on supply models don’t prevent labour providers from assembling gangs of workers, housing them in squalid conditions, charging them outrageously for food, transport and accommodation, working them without breaks under a contracted overseer, outsourcing payroll to an associated entity and taking deductions from their pay – if, instead of supplying the worker to the farmer to work in the farm business, the provider merely undertakes to harvest the farmer’s crop using the workers in its own business, whilst buffering the whole arrangement through a chain of sub-contracts and outsourcing arrangements that reduce transparency and accountability.

That’s because the labour provider hasn’t supplied a worker; it has simply used a worker. And it seems that this may not amount to an avoidance measure, because the use form of gangmastering is not covered by the labour hire provider definitions that have been put up so far.

Again, to help illustrate the gaps, let’s see if we can highlight some of the essential pieces of the UK Gangmasters scheme that are missing from the Queensland and South Australian proposals (as we’ve been doing for some months) and now seem likely to be missing from this new Victorian proposal.

GLA s. 4(4)  – A person acts as a gangmaster if he uses a worker to do work to which this Act applies in connection with services provided by him to another person.

 

GLA s.4(5) – A person (“A”) acts as a gangmaster if he uses a worker to do any of the following work to which this Act applies for the purposes of a business carried on by him

(a)        harvesting or otherwise gathering agricultural produce following

(i)   a sale, assignment or lease of produce to A, or

(ii)  the making of any other agreement with A,

where the sale, assignment, lease or other agreement was entered into for the purpose of enabling the harvesting or gathering to take place;

(b)        gathering shellfish;

(c)         processing or packaging agricultural produce harvested or gathered as mentioned in paragraph (a).

 

As you can see, they’re not talking here about supply (there’s another sub-section for that).  And there’s a very good reason for it. It’s because the gangmasters, who assemble and run harvest gangs do not supply workers to farmers. They use them themselves and their use of those workers is just as prone to exploit  workers’ vulnerability as any other labour provider model.

In Australia, the three attempts at labour hire licensing that we’ve seen to date have become caught up in the rhetoric about “labour hire” and appear to have been limited by text book understandings of labour hire that have not kept pace with developments in the workforce services market.

They continue to talk about the tripartite supply model of labour provision as though it were the only model worth talking about. Whilst they imagine that there may be other models, they seem unable to clearly distinguish between them; or find  markers that might give meaning to those distinctions.

They seem to have lost sight of the type exploitation that they are trying to prevent and the distribution of that exploitation across different and largely substitutable service models. There seems to have been a critical failure to come to terms with the composition and structure of the workforce services market in this country.

The schemes have been blinkered by  attempts to create a model that covers all industry sectors – including those in which there has been no evidence of egregious exploitation that would warrant the imposition of a restrictive licensing scheme.

In doing so, they have lost the ability to create clear markers between labour contracting that needs to be regulated to even up the playing field and other forms of contracting that do not.

To cover the defect created by their lack of sophistication, they  simply double down on the tripartite supply model.

So, they end up being too wide and untargeted, whilst simultaneously leaving huge gaps, or blind spots, where the risk of exploitation remains uncontrolled or ignored.

It needs to be stated plainly. You don’t create an even playing field for labour hire providers in the workforce services market by imposing on them a restrictive licensing scheme that fails to regulate the supply of substitutable workforce services operating in the same market.

That’s why the UK gangmaster licensing scheme covers both supply and use forms of gangmastering. It’s also why an industry sector specific scheme makes a lot more sense… that is if you’re really trying to target sectors at the greatest risk of exploitation.

Queensland rushed its legislation through parliament ahead of the election and missed the opportunity to address its shortcomings.  In South Australia, the penny is starting to drop, but still has a long way to fall. Victoria has a chance to get it right, but hasn’t given itself much time to do so, with submissions on exceptions due by 6 December and no sight of the draft legislation yet.

Let’s see how this one goes from here. We shouldn’t have to wait too long!

 

Andrew C. Wood

“No Refund” terms & conditions result in $750,000 fine, injunctions and costs orders.

If your terms and conditions expressly or impliedly exclude refund remedies under the Australian Consumer Law, you might be in for a nasty shock.

In a recent case, the Australian Federal Court imposed, by consent, fines of $750,000, injunctions and costs orders (totaling a further $50,000) on MSY Group Pty Ltd, MSY Technology Pty Ltd and M.S.Y. Technology (NSW) Pty Ltd for publishing, including on the companies’ website, business terms and conditions that impliedly excluded remedies available under the Australian Consumer Law (ACL).

As a result, the Court declared that the respondents:

  • “engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the ACL;
  • “made false or misleading representations in relation to the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy in contravention of s. 29(1)(m) of the ACL; and
  • ” made false or misleading representations in relation to a requirement to pay for a contractual right that is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy in contravention of s 29(1)(n) of the ACL.

What is especially important about this case is that the Court held that a contravention of these ACL provisions could occur, where MSY’s terms of business and representations:

… impliedly represented to consumers that their rights were limited when that was not the case.

…were silent in response to the consumer’s reference to their specific ACL rights and impliedly represented that MSY … was not required to provide an ACL remedy to consumers.

(My underlining).

The decision creates a risk for businesses that insert additional or alternative “remedies” – such as candidate replacement “guarantees” or indemnities – into their terms of business (or who answer questions raised by consumers about their remedies for defective services) and say nothing about the availability of the ACL remedies in circumstances where the ACL remedies apply.

The ACCC has been active, recently, in challenging unfair terms and conduct that may be in breach of the ACL. If it’s been a while since you last had your terms of business reviewed, you might do well to have your lawyers review them for you against the background of recent developments in this area.

And if your customer-facing staff are not familiar with the ACL remedies, it might be worth investing in some training.

It could be a lot less expensive than the $800,000 in fines and costs ordered in this case!

Andrew C. Wood

Uber drivers confirmed as “employees” by UK Employment Appeal Tribunal.

silhouette-of-scaleOn 10th November 2017, the UK Employment Appeal Tribunal delivered its judgment in Uber & Ors v Aslam & Ors [PDF].   The decision will be of interest to agencies and workers operating in the “Gig economy. Here is a brief summary.

Background

Members of the Uber Group had appealed from an earlier decision of the Employment Tribunal, which found that Uber drivers in London were “workers” within the meaning of the Employment Rights Act 1996, the Working Time Regulations 1998 and the National Minimum Wage Act 1998; and that any Uber driver who had the Uber app switched on, was within the territory in which they were authorised to work (London) and was able and willing to accept assignments was working for Uber London Ltd.

Appeal

A key ground in Uber’s appeal was that the Employment Tribunal had mischaracterised the true relationship between Uber and its drivers – that rather than being one of employment, it was one of agency in accordance with which Uber provided booking services as agent for its drivers.

Uber pointed to provisions in its suite of contracts and terms of businesss, which it contended supported its view.

Outcome

The Employment Appeal Tribunal disagreed and dismissed Uber’s appeal. At the time of writing it is understood that Uber intends to take a further appeal to the UK Supreme Court.

Take-away points

In the meantime, there are a few quick points that can be made about the EAT decision.

  1. It is the reality of the situation that matters. The Appeal Tribunal said:

[The Employment Tribunal] was entitled to disregard the terms in the written agreements and the labels used therein.

…the true agreement between the parties was not one in which [Uber London Ltd] acted as the drivers’ agent.

  1. Control still matters. The Appeal Tribunal said:

 The [Employment Tribunal]…was entitled to look at all factors to determine whether this was a case in which the … Uber drivers were entering into contracts with passengers as part of their own business undertakings. Seeing that they were subjected to control on the part of [Uber London Ltd] was an indication that they were not.

  1. These matters will continue to be decided on a case by case basis. The Appeal Tribunal said:

Inevitably the assessment [the ET] had carried out was fact-and context-specific.

Moving forward

It will be interesting to see what the Supreme Court makes of this.

Whilst, it would seem possible, in theory, to construct an agency relationship of the type which Uber contended for in this case, one might wonder whether Uber would have done better to construct the agency and booking service between it and the riders, rather than between Uber and the drivers.

It could also be important to recognise that this might not really be a case, where the Employment Appeal Tribunal said that the written documentation doesn’t matter … it’s perhaps more a case of making sure that the written documentation gets it right – i.e. that it reflects the true relationship between the parties.

 

Andrew C. Wood