How Australia is combatting worker exploitation

Over the last 12 months, inquiries into the labour hire sector in Victoria, Queensland and South Australia have all come to the same conclusion: there is widespread exploitation of vulnerable workers and this requires a regulatory response.

The independent Victorian Inquiry into Labour Hire and Insecure Work identified underpayments, non-payment of tax and superannuation, and health and safety breaches as being particularly evident in three sectors: horticulture (in particular fruit and vegetable picking), meat processing and contract cleaning.

In Queensland and SA, parliamentary committee inquiries found evidence of ‘phoenixing’ (which typically involves the winding up of a non-compliant entity and starting up a new company), sham contracting, unlawful undercutting of employment conditions and unsafe work practices in the horticulture, meat, cleaning, security and hospitality industries (among others).

The findings of these state-level inquiries are consistent with those of investigations by federal parliamentary committees and the Fair Work Ombudsman, along with a stream of media reports in the last two years. Major corporate brands including 7-Eleven, Caltex and Domino’s Pizza have been implicated in significant workplace law contraventions.

The need for reform 

Introduction of licensing

Licensing of labour hire providers or contractors is considered a necessary step because, as all three state inquiries found, there are very few (not to mention low) barriers to entry to the labour hire industry in Australia. While federal and state laws setting minimum employment and safety standards apply to labour hire companies in the same way as they do to other employers, the inquiries identified high levels of non-compliance with those laws among parts of the labour hire sector.

Disreputable labour hire contractors, e.g. many who supply workers to the farm sector, use technology (the internet and mobile phones) to avoid detection of underpayments and unlawful practices. In many instances, they advertise work on the internet and do not operate through a registered business or corporate entity.

Licensing schemes, with strict standards attached to obtaining and maintaining a licence to provide labour hire services, are common in many other countries. In the United Kingdom, in particular, the licensing framework overseen by the Gangmasters and Labour Abuse Authority has proven to be an effective mechanism to combat labour abuses, forced labour and human trafficking for over a decade.

The objective of licensing is to eliminate ‘rogue’ operators from the labour hire sector at source. In this respect, the imposition of obligations on both labour hire providers (to obtain a licence) and host companies (only to use the services of a licensed operator) is critical. So, too, are effective monitoring and enforcement of the licensing scheme and the imposition of substantial civil and criminal penalties for non-compliance.

Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Cth)

The Coalition Government has introduced the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Bill) into Parliament. The Bill proposes to introduce a number of amendments to the Fair Work Act 2009 (Cth) (FW Act), implementing the Coalition’s 2016 election policy to address underpayments and other forms of exploitation identified in various inquiries by the FWO and federal and state parliamentary committees.

The most significant changes proposed by the Bill include:

• Introducing higher civil penalties for ‘serious contraventions’ of prescribed workplace laws, to address concerns that civil penalties under the FW Act are currently too low to effectively deter employers who exploit vulnerable workers.

• Clarifying and increasing the applicable penalties for provisions relating to the failure by employers to maintain accurate employee records and payslips.

• Expressly prohibiting ‘cash-back’ arrangements through which employers unreasonably require their employees to make certain payments.

• Strengthening the evidence-gathering powers of the FWO and introducing new offences for hindering or obstructing investigations, or providing false or misleading information to the regulator.

• Making franchisors and holding companies responsible for contraventions of certain workplace laws by their franchisees or subsidiaries, where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them.

Recommendations of the State Labour Hire Inquiries

The members of the Queensland inquiry could not agree on a licensing proposal. Their report made one, fairly modest, recommendation: that the State Government urge the Federal Government (through COAG) to address the issuing of Australian Business Numbers as a device for labour hire companies to avoid their obligations to workers.

However, the Victorian and SA inquiries proposed bolder reforms, recommending the introduction of labour hire licensing schemes including assessment of whether providers are run by ‘fit and proper’ persons and can demonstrate past and future compliance with workplace laws.

The Queensland Government has moved beyond its inquiry’s limited recommendation, becoming the first state to introduce labour hire licensing legislation into Parliament:

• The Labour Hire Licensing Bill 2017 (Qld) would prohibit any provider of labour hire services in that state from operating without a licence. It would also prohibit persons from using the services of an unlicensed provider.

• The maximum penalties attached to both these prohibitions would be $126,000 for an individual or three years’ imprisonment, and $365,700 for a corporation.

• To obtain and keep a licence, a labour hire provider would need to show that it is a financially viable business; run by fit and proper persons (including no past convictions for relevant criminal offences or involvement in failed businesses); and has a history of compliance with workplace, health and safety, tax, superannuation and migration laws.

The Victorian Government announced in May this year that it would implement 33 of the 35 recommendations of its independent Labour Hire Inquiry (Inquiry), including the establishment of a licensing scheme. The Government is now consulting with industry stakeholders on the optimal model for licensing, and whether the scheme should be limited to the sectors highlighted in the Inquiry or extended across the labour hire sector.

Most recently, the SA Government indicated that it will soon introduce labour hire licensing legislation, noting that another recent investigation (by ReturnToWork SA) has found evidence of significant avoidance of workers’ compensation obligations by labour hire companies.

The challenges of labour hire regulation for the Victorian Government

Acting on the evidence from its own independent Inquiry, the key challenge for the State Government is to come up with a licensing scheme that:

• implements much-needed protections for vulnerable, low-paid workers

• ensures minimal disruption to the large number of reputable labour hire companies

• preserves a reliable source of workers for growers and other end users of labour hire services.

Victoria has indicated that (along with Queensland and SA) it will continue to push through COAG for a national labour hire licensing scheme. This would be a preferable solution, offering businesses a uniform approach, but state-level regulation is imminent in the meantime.

While these regulatory initiatives will focus on improving workplace law compliance in domestic supply chains, momentum is also building with the Australian Parliamentary Inquiry for an Australian equivalent to the UK’s Modern Slavery legislation which aims to increase transparency in the global supply chains of major corporations.