Collective Bargaining in the Freelance, Contracting and Gig Economies

Young people work in modern office.As job-based employment seemingly evolves toward job-based entrepreneurship in the freelance, contracting and gig economies, we may soon witness the emergence of new models of workforce organisation and worker representation. That is, if the ACCC’s plan to grant a class exemption allowing small businesses to bargain collectively with their customers and suppliers goes ahead.

Collective bargaining, in this context, involves two or more competitors getting together to negotiate with a supplier or customer (the “target”) about terms, conditions and/or prices.

It is distinguished from bargaining under the Fair Work Act in that the parties who get together are not employees; they are actual business competitors.

They include many contractors and freelancers, working in the on-hire and gig environments.

They may be technology contractors, medical locums, project managers, professional science & engineering contractors, designers & creatives, book-keepers, contract cleaners, contract logistics operators, or translators.

Indeed, they may be any small business that undertakes professional, skilled, or trade work that is done by workers who perform their work in, and as part of, their own businesses.

Recruitment, contracting, and staffing agencies would therefore do well to follow this new development closely; and begin to think about the challenges and opportunities that the ACCC’s proposal presents.

For example, what might an on-hire or IT contracting agency expect from a scheme that allows a pool of  its IT contractors to bargain collectively with it on price, terms and conditions of engagement?

Who might represent them? Should the current restriction on trade union representation apply? If it did, might we witness the emergence of contractor “guilds” that would be able to operate outside the Fair Work bargaining framework?

How might the ACCC’s concept of joint procurement bargaining play out, if it allowed that same pool of IT contractors to bargain simultaneously with their IT contracting agency and its clients?

What might small recruitment agencies, working in the creative or medical locum industries, gain from being able to bargain collectively with clients on price, terms and conditions of supply – without the need for any notification or authorisation?

What might the competition impact be on medium and larger businesses, who fall outside the scope of the class exemption; or who may be the targets of collective bargaining?

How might the role of industry associations develop to support members looking for collective bargaining resources and solutions?

These are just a few questions that recruitment, contracting, and staffing agencies (and their industry associations) might now be asking. No doubt there are many others.

The ACCC would like to hear about them by 21 September 2018.

 

Andrew C. Wood

ACCC Proposed Class Exemption to Allow Agribusiness Collective Bargaining: Unintended Labour Market Consequences?

Strawberry Harvest in Central CaliforniaEarlier this year, I was asked to outline 10 steps that providers and users of labour hire services could take to prepare for the anti-competitive labour hire licensing schemes that were about to start in South Australia and Queensland (and more recently, Victoria).  

It now looks like step #9  – Anticipate and adjust to changes in the market – may prove especially important if the ACCC’s plan to grant a class exemption allowing agribusinesses to negotiate collectively with their suppliers goes ahead.

Step #9 highlighted the importance of appreciating that:

  • not everyone would get a licence;
  • this would leave gaps in the market, especially in regional areas, that would require new networked services supply models; and
  • consolidation and rationalisation would occur around licensed providers, giving them  increased market power and a significant market advantage over licence applicants, many of whose applications are still pending.

The ACCC’s plan to allow a collective bargaining class exemption would “provide a ‘safe harbour’, so businesses that qualify can collectively bargain without the risk of breaching competition law”. 

That would significantly offset any increase in market power or competitive advantage that a licenced provider might obtain.

Buyers and sellers of labour hire services should now be thinking strategically about how that offset could be harvested to best advantage to produce service and pricing models, which do not simply drive prices down again to levels that compromise the ability of reputable labour hire providers to meet safety net, decent work, and accommodation standards.

The relationship between sustainable business modelling, bargaining, and labour exploitation was beginning to be explored in the Fels Wage Fairness Panel Inquiry into the 7-Eleven Franchise.

Although there is still much work to be done, the ACCC’s plan is likely to advance the discussion of that relationship … but only if labour hire, contracting, and staffing services providers join the debate.

The ACCC is inviting submissions on its proposed plan by 21 September 2018.

 

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

 

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

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/

 

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

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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Who’s in charge? Independent contractors and the unfair terms in small business contracts reforms.

On 12 November 2016, what has been described as “the single biggest change in the way Australian enterprises do business for decades.”[1] took place.

Judging from the lack of registrations at one industry association workshop[2], there may be reason to think that it might have passed in some sectors of the recruitment and contracting industry without too much notice[3]. That is a pity because, amongst the seven industry sectors that the ACCC has been viewing closely as it prepares to administer the reforms, is the independent contracting sector.

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Unfair terms in standard form small business contracts in the independent contracting sector – First questions.

With only eight weeks to go until the unfair terms in standard form small business contracts reforms take effect on 12 November 2016, and with the ACCC having indicated that the independent contracting sector is clearly in its sights[1], I am hoping that someone is looking at how this is going to play out for independent contractors and their principals in the recruitment, on-hire, and contracting industries. 

I might be about to ask more questions than I can answer; but let me ask them anyway and see if they bring a few issues into sharper focus.

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Defining the Undefinable. Pursuing the illusive definitions of “independent contracting” and “employment”.

In the lead up to the 2016 federal election, the ALP committed “to work with workplace relations experts and practitioners, employers and unions to develop a definition of independent contracting that will provide certainty to workers and employers”[1]. Despite losing the election, there are still plenty of people involved in state and industry politics, who would like to do much the same thing.

So, let me explain why I think that heroic attempts to define independent contracting and employment are futile; and quite possibly counter productive, other than to reveal what the workplace relations experts already know – namely that the terms are neither defined nor definable.

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Standing Offer or Overarching Agreement? Is it time to review your terms of business?

How long has it been since you last had your terms of business reviewed? If it’s been a while, it might be worth taking note of some recent developments in the Australian Consumer Law and having them looked again. That’s because they might be structured in a way that is more likely to attract existing statutory guarantees under the ACL and the unfair terms in small business standard form contracts provisions that come into effect on 12 November 2016).

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Waddles like a duck, quacks like a duck; but occasionally honks!

Not everything that goes under the label, “labour hire” these days is labour hire. And that can be a problem – especially when an inability to nuance between different categories of employment services results in all being tarred with the same brush, or when terms of business misalign with the agreements for the supply of employment services that the parties have actually made.

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