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Sham-ful Behaviour

University of Adelaide law professor explains sham contracting

Professor Andrew Stewart Deputy Dean of the Adelaide Law School in the University of Adelaide spoke about a subject which he is passionate sham contracting. Andrews main areas of interest are employment law, workplace relations, contract law and intellectual property. He teaches, researches, works as a consultant in industry and also with government organisations in all aspects of labour law. He has written a number of books, including Creighton and Stewarts Labour Law and Stewarts Guide to Employment Law. He says: A lot of the writing that I do tends to be a combination of analysing whats happening and putting forward ideas about how things can be improved. This article concentrates on the topic of sham contracting what it is, why it persists, what is being done about it, and the part Andrew is playing. It is a huge phenomenon in Australia, which is known for its superb labour laws yet people working under sham contracting arrangements are being prevented from benefiting from the protection provided through these laws. What is sham contracting? Sham contracting occurs when people are taken on as independent contractors but who in functional terms are really employees. This results in reduced rights, explained further below. How it affects remuneration varies some may be paid more or less than if they were explicitly employees. The reasoning behind it also varies. As Andrew says: There are a lot of different stories, and some of it involves people being bought out of having rights; in other cases it is rampant exploitation. This article is not addressing those people who choose to be contractors but those whose rights are compromised. What is the difference between employees and contractors? I think many people will be surprised to hear that Andrew says: Industrial laws dont have a definition of who is an employee. This seems like a basic point that would be covered by the legal system. Instead: It is left to some common law principles that can be exploited by a carefully drafted contract. In my professional capacity I can help draft a contract that will turn any employee into an independent contractor I should not be able to do that. So I have had a mission for many years of trying to suggest ways in which that kind of practice can be minimised. So lawyers can change a persons working status simply through drafting a document. What about the reverse? What if I want a contract that makes it clear that I am an employee, since this seems to be the best position to be in? Easy lawyers can do that too but it would be incredibly unusual, because the power is with the hiring organisation and they are usually the ones who benefit from having contractors rather than employees. Interestingly, I am an employee of my law firm [Andrew works as a consultant for the national law firm Piper Alderman]. I chose not to be a contractor. Financially I could have been better off but I believe people should be treated as employees when they are employees, so this is consistent with my belief. What has been happening in Australia in recent years? This issue has been around for many years and recently has become more of a problem as many firms have been realising the benefits of treating people as contractors but still in functional terms being able to control them as if they were employees. About ten years ago, I put forward a new definition of the term employee that would go into our industrial legislation that would make it harder to disguise employees as contractors. By 2006, Id managed to get the Democrats, the Greens and the Labor Party all on side with that, and it got to the point where it was actually put up to Federal Parliament as an amendment to what was then the Workplace Relations Act. At that time, the Labor Party then started to look more likely to get into office and they realised how much certain vested interests, particularly in the housing industry, would arc up if they went ahead with that proposal, so they dropped it.

So is anything likely to be done about it? Since the Labor Party have been in government they havent done anything about it. However, there is an enquiry which has been conducted by the Australian Building and Construction Commissioner (ABCC). The report has just come out and it recommends further research into contracting arrangements. Ultimately though Im hopeful that the inquiry is going to generate policy recommendations that may help not just in the building industry but potentially in other industries. The Greens in particular are still very keen on tackling that. Andrew says that he is not sure whether the current government will act on this but believes it is not out of the question. As the evidence stacks up that this is becoming a real problem they might do something about it. The Australian Council of Trade Unions (ACTU) is currently running an enquiry into insecure work. I have not yet had the opportunity to do anything for that but I intend to. I will continue to agitate about that issue in public submissions and Ill be finalising a new article that again articulates the case for change. The issue is an ongoing topic for Andrew who talks about it in interviews and has been working in this area for several years. It is an issue which comes up constantly in discussion with Leon Byner on FIVEaa. I am regular guest on his show and its one of the things he hears from a lot of his listeners, about people being forced to be contractors when they are really not. Which are the key industries affected? An obvious example is the housing industry, which operates on the basis of a lot of people working as contractors who really ought to be employees though they also have many genuine contractors. Andrew believes the housing industry is likely to campaign strongly against any government that proposes to do anything about this. Two other key sectors where sham contracting is rife are road transport and textiles. Andrew gives examples of how sham contracting works in the road transport industry and what is being proposed to deal with this: Weve just seen two lots of legislation tabled in Federal Parliament to tackle issues which are essentially about sham contracting. There is some legislation about road transport drivers, in particular problems of owner drivers of trucks. Some truckies are running their own business, but for many, the idea that they are running their own business is a nonsense they are working for a single company. So the legislation in parliament is setting up a new federal tribunal that will prescribe minimum rates of pay, because there is pretty clear evidence that says that for a lot of these owner drivers that dont have the protections of our industrial legislation, they are being forced to work at incredibly low rates of pay and how do they then make a living, with the cost of the truck to pay off? The answer is they drive longer and longer hours and they drive quicker and quicker. Speed and fatigue are two reasons that are contributing factors to many deaths on our roads. The other key industry is textiles: Weve seen legislation introduced to extend protections that already exist for outworkers in the textile, clothing and footwear industry. An outworker is a worker who does most of their work away from a formal workplace for clothing, it could be a woman sitting at home with a contract to produce a certain number of garments and she gets paid according to the number of garments she produces. The rates of pay are low and the companies are often short-lived operations that will quickly vanish. There is a long contracting chain running down from the major retailers, and as you run down the chain, there are typically some very ephemeral fly-by-night businesses that are here one day and gone the next. At the bottom is the outworker these tend to largely be women, many from a migrant background and they are the ones who are exploited. In days gone by these are the people who would be working in sweatshops but these are less common now. Increasingly they are working from home so we have legislation that is designed to protect those workers, whether they are employed or not, even if they have been taken on for legal purposes as contractors. The problem does not stop at these specific industries or any geographical location. It is much more widespread and ubiquitous, since the law is not in place to stop this kind of exploitation. Andrew says the problem is, what we dont have is a recognition of the capacity to exploit that extends across any type of

work. That is one of my great passions and missions to get something done about it. But I dont hold out great hopes because Im very aware of the political obstacles. In an area like industrial relations and labour regulation, there is a lot of politics. You can choose to ignore the politics, which will not get you very far or you can choose to understand and work with the politics and thats something I try to do. So if you find yourself in this situation, how can you defend yourself? Lets say we have a situation where someone is working as an employee and is then either induced or effectively forced to resign from their employment to become an independent contractor. There are in fact provisions in what is now the Fair Work Act to deal with exactly that situation and the Fair Work Ombudsman, which is the main enforcement body under our industrial laws, is increasingly bringing prosecutions against businesses engaging in that kind of activity. It is not as if the protections arent there, but either you have to be prepared to bring some sort of court proceedings, or you go to a body like the Fair Work Ombudsman and tell them your story and see if they are prepared to investigate and do something about it. The ABCC is also doing this in the construction industry. We are seeing an increasing number of sham contracting prosecutions. There is certainly some legal protection there for employees who are forced to become contractors. There is also some protection for people who are hired as contractors but legally they are employees, but that really only catches businesses who have no idea what they are doing. If I take you on to work for my business and I tell you that you are a contractor and I say go and get yourself an Australian business number (ABN) and give me invoices, and Ill pay you and its up to you to worry about the tax, the chances are fairly good that you are in fact going to be my employee, not a contractor, which means that you have quite a range of good legal options. For a start, going to the Australian Tax Office and asking where your super is, or checking whether you have been paid enough, such as meeting the minimum wage under our industrial laws, or whether you have been provided with leave entitlements. The businesses who dont know what theyre doing can be, and increasingly are being, caught out. Businesses that know what theyre doing and get legal advice and get a carefully drawn up contract and are careful about what they explain to the people they are taking on, theres not much that can be done at the moment. That is what I want to change. What about the Fair Work Act how does that fit into this issue? Over the last 20 years we have had constant change in labour legislation. I think maybe that era of change is coming to an end and settling down. We have the Fair Work legislation which has now been in place for two years. It is about to be reviewed. What is that legislation for? The Fair Work legislation is the main industrial legislation that applies across the country. Apart from in Western Australia it applies to everyone who works as an employee in the private sector. It sets down minimum standards for employment on wages, working hours, leave entitlements; it provides employees with protection against unfair dismissal; it deals with the rights of trade unions; and it deals with a range of other issues from the small, like the obligations of employers to keep records, up to the big principles about not being discriminated against on various grounds. But it is focused on employees: If you are working as an employee in Australia you have one of the most impressive and significant set of protections that exist in the developed world. If you are a contractor you have almost no protection. Essentially [as a contractor] you are not covered by the Fair Work legislation for most purposes. You have the protection of most health and safety laws those apply to anyone who is doing work at a workplace, whether they are employed or a contractor. You have protections against discrimination so if you are

working as a contractor you have as much legal protection against being discriminated against because of your gender, age or race, political opinion or disability, as you would do if you were an employee. If you are prepared to pay the costs of litigation, you have the capacity to complain about the fairness of your contract. The Federal Magistrates Court has the power to review any contract for the performance of work by a contractor to see whether the terms of the contract are unjust or unreasonable. In extreme cases that can be used to challenge rampantly unfair contracts but you have to be prepared to afford the cost of going to court which is always a problem. In your work in this area, what are you concentrating on? Most of what I do is actually about analysing what is going on. My work is very hands on. A lot of the work I do law firm, media, speaking, government work, submissions to enquiries it is all connected. The major thing I can do is simply explain to people what is going on and ensure that people have a more informed idea about what is happening that is the crucial thing. In the area of sham contracting I have definite views about what I think is right and wrong. My views are generally secondary to what I do, but for a lot of what I do, it is not value free. You are making certain assumptions even if you describe the current position. It is never a neutral statement. Andrew is passionate about this area of labour law: That is one area in which I have a strong longstanding commitment to trying to get the law changed.