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.

 

The FWO’s Guides to Contracting Labour and Supply Chains: First Views.

Businessman & NewspaperSome preliminary views on the Fair Work Ombudsman’s new guides to labor contracting.

Firstly, they are a very timely resource in view of the FWO’s stated intention to extend accessorial liability to accountants & other trusted advisors.

Next, I really like the focus on inquiry, transparency, and the use of contractual controls, which the FWO prudently suggests users should have checked by their lawyers!

At the same time, I wonder if there’s a useful conversation to be had with the FWO about the architecture of these so-called “labor supply chains”; and whether there might be value in viewing them, not so much as a hierarchy of supply, as a system of co-ordinated roles.

The guides seem to focus on sub-contracting without differentiating it from outsourcing. Consequently, there’s a risk that the type of “sub-contracting” presented in the guides may not distinguish clearly between labor engagement roles (e.g. labor-hire and workforce contracting); labor sourcing roles (e.g. source/select/place); and labor management roles (e.g. contract management – including a variety of MSP & MVA arrangements). Additionally, workforce logistics roles (transport, accommodation, catering etc) & migration assistance roles seem to be “out of view” of the type of labor sub-contracting presented in the guide. That’s important because exploitation is possible at any of those role interfaces.

To illustrate the point, it would be possible for a workforce contractor, who was using the template questionnaire, which the FWO has produced, to respond to the first question in the following way:

Q: Do you subcontract any of the services you provide to us? If yes, briefly state why they are independent contractors rather than employees…

A: No. We’re a workforce contractor and we’re going to harvest your strawberries (or do your cleaning, collect your trolleys…etc) ourselves…

After that, the answer to every other question is either, “no” or, “not applicable”.

Without differentiating between sub-contracting (i.e. passing responsibility for part of the contract works to someone else) and outsourcing (i.e. acquiring services to enable the contractor to focus on its core contractual responsibility), the information that the FWO’s template question won’t solicit, and the answer won’t tell, could be:

A (cont’d): But to do it, we’re going to acquire labour-hire services from a firm that acquires its placement services, payroll services, contact management and workforce logistics services from X, Y & Z.

So, there might be a strong argument as to why a system of roles approach to the challenge that is presented by the exploitation of supply chain labour might offer considerable advantages over the hierarchy of supply approach evident in the FWO’s treatment of sub-contracting.

Finally, it’s a pity that we continue to speak of “labour supply chains” and “providing workers”, as though labour and workers were commodities. What is needed, I think, is a more sophisticated analysis of the auxiliary workforce services networks that support supply chain operations. At those points in the guide, where the FWO departs from supply chain language and adopts network language, the case for taking “practical steps… to minimise …legal or reputational risks” is far more compelling; and the measures suggested by those steps are much more within reach .

Hopefully the work that is presently being done towards developing a certification program will help to provide a framework for that analysis.

 

Andrew C. Wood

 

 

Labour Hire Sub-contracting in Australia: “The train that wasn’t there”?

THE EMPEROR'S NEW CLOTHES

THE EMPEROR’S NEW CLOTHES From the illustration in colour by Edmund Dulac

But he isn’t wearing anything at all,” said a little child.

“Dear God, listen to the voice of innocence,” his father said, and each person whispered to the other what the child had said.

“But he isn’t wearing anything at all!” everyone shouted at last.

The Emperor shuddered because he was afraid they were right, but he thought, “I have to finish the parade,” and the haughty servants walked on, carrying the train that wasn’t there.

Adapted from Marte Hvam Hult’s translation of H.C. Andersen’s Eventyr (1963-1967)

Illustration (detail) sourced from The Outline of Literature (Vol II), (1923)[i]

Lately, I’ve being hearing a lot about so-called “labour-hire contracting chains”[ii].  But I really wonder whether, like the Emperor’s new clothes, they might be “the train that isn’t really there” – at least as regards the purported on-hire “supply” of employees[iii] via labour-hire chains. Here’s why, in twelve points of contention:

  1. “Labour is not a commodity”.[iv] That’s not so much a legal principle, as description of the special characteristics of labour. It’s also the foundational principle of much of the International Labour Organisation’s charter and its decent work agenda.
  2. This is reflected in the notion that the employment relationship is a personal relationship that arises from a relational contract.[v]
  3. As stated by the House of Lords and the Australian High Court, “No employee is an asset in the employer’s balance sheet to be bought and sold”.[vi]
  4. So, perhaps we need to re-think what REALLY happens under a labour-hire contract; because it’s quite unlike hiring a piece of industrial equipment, or a car.
  5. A labour hire contract is NOT a contract by which a labour-hire firm promises to “supply employees”. That is because employees are not “supplies” – see points of contention 1, 2 and 3. But, unfortunately, that’s the language that is commonly used; and it leads to all kinds of misconceptions that basically view employees as property.
  6. A labour hire contract is BETTER CONCEIVED of as a contract by which a labour-hire firm promises to exercise its relational control[vii] stemming from a contract of employment in order to have its employees present themselves to perform work under supervision and direction and at a place usually determined by the client.
  7. If a putative labour-hire company lacks the requisite relational control in the case of workers, who are employees – e.g. because it is not the employer – whatever else it might provide, it does NOT provide a labour-hire service. That is because it cannot “on-hire” those whom it has not hired.
  8. If that is so, what purports to be a labour-hire contract between supplier and client where a labour-hire chain is involved, upon closer analysis, may sometimes prove not to be a labour hire contract at all.
  9. If the supplier fails to supply that which it has agreed to supply, the contract may be set aside; and in some cases, will be ignored by the Courts as they seek to find the true employer… who could be the client.[viii]
  10. Where the putative employer purports to pass relational control to another person to exercise for that other person’s own benefit (or even as purported agent for the putative employer), the relationship between putative employer and putative employee can become so attenuated that it ceases to bear any resemblance to an employment relationship. See point 2.
  11. If the putative employee is bound to the service of a third party, to whom the putative employer has passed relational control, the relationship begins to bear the hallmarks of contractual bondage.
  12. The doctrine of joint employment provides no solution in Australia; because, whilst it is still considered in some quarters to be an open question, Australian employment law has not adopted it.[ix]

So, what’s to be done? Here are some practical steps that employment services providers and their clients might take to make sure that they not left exposed.

  • Know what services you’re actually supplying or acquiring. Don’t stop at whatever label happens to be given to them. Go deeper and look at the real nature of the services. Examine their legal substance and ask if they stack up.
  • If you find that you are involved in a labour-hire contracting chain, make sure you know where your workers are coming from and how they get there.
  • Beware of extended contracting chains with weak links that don’t seem to add any real value and seem only to add cost, or to distance the point of engagement of your workers from the point where work is performed.
  • Be prepared to discover that some of the participants in your contracting chain, despite what they might call themselves, are not labour-hire agencies at all; but could be some other type of labour intermediary – e.g. sourcing/placement agency; workforce contractor; or contract management company.
  • If you are unsure of the nature of the services in your contracting chain, seek professional advice from someone, who can undertake the legal analysis necessary to make a correct identification.
  • Make sure that your contracts and terms of business support the type of transaction in which you re actually involved.
  • Beware of “templates” and “standard form contracts” that might not really be suited to your actual supply situation.
  • Once you know how your service network is constructed, make sure that you have in place a range of contractual and other controls that can provide adequate assurance that the suppliers you are dealing with are reputable; that any risk of exploitation is properly controlled; and that amelioration measures are appropriate. Robust certification schemes and resources such as the Fair Work Ombudsman’s new guides to labour contracting can help.
  • And, lastly, when in doubt, seek expert guidance.

Andrew C. Wood

[i] Drinkwater, John and Drinkwater, John, 1882-1937 The Outline of literature (Vol II). G. Newnes, London, 1923, page 582.

[ii] An arrangement by which labour-hire firm (A) sources workers from labour-hire firm (B), which employs the worker and purports to “supply” workers to A for on-hire by A to A’s client. In Australia, such “chains” have been discovered to consist of as many as seven “links” before the original employer can be identified. The arrangement can be problematic because, in cases where it is misused it serves to distance the point of employment from the point where labour is performed. This type of buffered sub-contracting makes little or no value contribution. It draws value out of the supply chain, adds cost, and creates a next-to-impenetrable cloud around exploitative employment practices. In short, it lacks sustainability.

[iii] The position as regards independent contractors, whose services are on-hired through labour-hire chains, may be different and warrants separate consideration.

[iv] Declaration Concerning the Aims and Purposes of the International Labour Organisation (Declaration of Philadelphia) (1944) http://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—ilo-islamabad/documents/policy/wcms_142941.pdf accessed 9 May 2017 at 12.17 pm.

[v] Johnson v Unisys Ltd [2003] 1 AC 518 at 532. See also the discussion of this point in Commonwealth Bank of Australia v Barker [2014] HCA 32 per French CJ and Bell and Keane JJ at [para 17].

[vi] Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd [2005] HCA 9; (2005) 222 CLR 194, per Gleeson CJ, Hayne, Callinan and Heydon JJ.

[vii] This is the type of lawful authority to command so far as there is scope for it that is derived from the contract as discussed by Dixon CJ, Williams, Webb and Taylor JJ in Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73; (1955) 93 CLR 561.

[viii] Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [2015] FCAFC 37 per North and Bromberg JJ at [paras 215 to 218]. Although the orders were varied on appeal to the High Court, this part of the Full Court’s decision was not disturbed.

[ix] Coghill v Indochine Resources Pty Ltd [2015] FCA 377 per Katzmann J at [para 27].

Supply Chain Conversation #4: Certification Coverage – “Who’s in; who’s out?”

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In this, the fourth installment in our current series of Supply Chain Conversations, during which RCSA’s CEO, Charles Cameron, has been posing a number of questions about the involvement of workforce services firms in supply chains, we examine the coverage of RCSA’s Certification Program, looking at some non-traditional labour supply arrangements and asking, “Who’s in; who’s out”.

 

CHARLES: Andrew, I have some examples of non-traditional labour supply arrangements in Australia and New Zealand.  Can you describe how, under the RCSA certification model you have devised, each would be covered, if at all? Continue reading

Supply Chain Conversation #3: Supply chain labour governance and certification.

conversation-3-_22119259_5e71cc57f3ba272e61ac1c66d01c5d2482cb9abcRCSA’s CEO, Charles Cameron, has been posing a number of questions about supply chains for me, lately. In this series of Supply Chain Conversations, we explore the involvement of recruitment and workforce services firms in supply chain operations.

Our third conversation reveals how certification of workforce services providers, who exercise good stewardship over their service value networks, can contribute to better supply chain labour governance and trigger a collaborative “race to the top” that harnesses the power to convert a supply chain, one link at a time.

CHARLES: RCSA is currently developing a certification program to make it easier to make clean and ethical workforce services buying decisions which, in turn, will force change in the market by ensuring unethical and non-compliant providers don’t win work.  This program incorporates the concept of a ‘service network’, where workforce services providers are part of a ‘service network’ and have to use their control or influence to enhance supply chain labour governance.  Can you explain how this would work? Continue reading

Supply Chain Conversations #2: Supply chains & service value networks

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RCSA’s CEO, Charles Cameron, has continued to pose some important questions about supply chains for me. In our series of Supply Chain Conversations, we explore the involvement of recruitment and workforce services firms and auxiliary labour in supply chain operations.

Our second conversation highlights a distinction between supply chains and service (or value) networks and extends to consider how that difference influences the design of industry based supply chain governance initiatives.

CHARLES: You’ve spoken a little about why a ‘service network’ approach may work better than a supply chain approach, when it comes to eliminating unethical labour-hire and contracting.  What is the difference between the two? Continue reading

The Unfair Contracts Legislation: Threat, Challenge, or Opportunity?

Now that we have passed 12 November 2016, when the unfair terms in standard form small business contracts reforms commenced, recruitment, on-hire and contracting agencies might consider how they can adjust to the changes; and might ask themselves whether the changes present a threat, a challenge, or an opportunity. They might be all those things. And, for a few, they might also be an invitation to do something amazing.

Continue reading

Checking for Unfair Terms in Standard Form Small Business Contracts.

With less than eight weeks to go before the unfair terms in standard form small business contracts changes to the Australian Consumer Law take effect, the Recruiters Casebook outlines steps that recruitment, contracting and on-hire agencies might take to avoid being caught out after the commencement date on 12 November 2016.

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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.

Continue reading

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.

Continue reading