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Legislative Council - Fifty-Third Parliament, Second Session (53-2)
2017-11-28 Daily Xml
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Bills

Labour Hire Licensing Bill

Second Reading

Adjourned debate on second reading.

(Continued from 16 November 2017.)

The Hon. J.A. DARLEY (11:03): I understand that the impetus for this bill was the ABC Four Corners program that exposed the unscrupulous practices of some labour hire companies. I have seen this program and it was very difficult to watch so many people being exploited by these companies. I understand that it is within the federal government's jurisdiction to monitor and enforce the existing laws around the exploitation of workers. Clearly, the system has failed.

The South Australian government has recognised that there is a problem here and, through this bill, is attempting to address the issues. Whilst I applaud them for taking this step, the mere fact that we have five sets of government amendments indicates that this bill was not very well thought out or consulted on before its introduction to parliament.

I support the principle of this bill to license labour hire businesses, which will lead to greater oversight and regulation of the industry. I have met with many stakeholders and understand the main point of contention is the definition of labour hire, which is primarily outlined in clause 6 of the bill. The two schools of thought are either to leave the definition broad to capture as many businesses and provide exemptions as needed, or to refine the definition so the bill is restricted on which businesses will be included.

I have considered both arguments but believe that dishonest labour hire operators are very clever in finding loopholes in legislation to continue their unscrupulous business practices. As such, I support the government's position to have a broad definition. However, I acknowledge the concerns from some stakeholders that this might be unworkable and have filed amendments for review of the act after three years. This way, any problems will be identified and can be rectified.

The Hon. K.J. MAHER (Minister for Employment, Minister for Aboriginal Affairs and Reconciliation, Minister for Manufacturing and Innovation, Minister for Automotive Transformation, Minister for Science and Information Economy) (11:05): I want to thank those who have contributed in this place and the other place. The government would also like to thank all the stakeholders who have participated in the consultation and provided informative and constructive submissions. As a result of the responses received and conversations with relevant parties, the government has filed a number of amendments to the bill, which I will address in more detail during the committee stage.

From the outset, I want to reiterate that the government recognises that the labour hire industry is a significant employer of South Australian workers and a major contributor to our economy. Labour hire provides an effective employment tool to manage skill shortages, recruitment and seasonal workloads, and benefits a vast array of industries. I would also like to take this opportunity to acknowledge the many legitimate labour hire providers who operate ethically and lawfully in this space.

However, there is no doubt that there is a broad spectrum of compliance within the labour hire industry and that the triangular nature of labour hire arrangements offers an opportunity for unscrupulous operators to operate almost entirely outside of the existing regulatory environment. We know this because the exploitation of workers in the labour hire industry has been the subject of four separate inquiries in Australia in recent times. Each of those inquiries has identified that there is a need for greater transparency and regulation in the labour hire industry.

One fundamental problem found by all of the inquiries was the ease with which an unscrupulous operator can enter the market with the intention of avoiding legal obligations such as taxation, workers compensation premiums, superannuation, the payment of appropriate wages and working conditions. With the same ease, these types of operators fold the business as soon as there is any questioning of their operations, only to start up a new business with the same intentions. This operation is commonly known as 'phoenixing'.

There are persons who oppose the regulation of the labour hire industry. Their arguments are based on opinions that the existing laws for compliance and enforcement in relation to the underpayment of wages, superannuation, taxes, return-to-work premiums and breaches of work health and safety laws are sufficient and that the answer is greater compliance and enforcement activity. If this was the case, the Four Corners program that has been referred to in the second reading debate would not have occurred.

What such an argument fails to recognise is that you cannot enforce compliance against a party you cannot identify or locate, and at its heart this is the legislative gap that this bill aims to address. It establishes measures that complement and enhance existing regulation, providing greater transparency, improving compliance, protecting workers and making it harder for rogue operators to enter and participate in the market.

Many examples of illegitimate practices have been provided in evidence to inquiries across Australia. What has been demonstrated time and time again throughout those inquiries is that investigations into breaches of legislation are impeded by not being able to identify and contact representatives of the business or the business folding once they understand that inquiries are being undertaken into their operations. Unfortunately, given the complex nature of this illegal activity and avoidance, data collection in this area is extremely difficult.

While it is often cited that more than 90 per cent of all participants in the industry are compliant labour hire firms, evidence provided to this parliament's Economic and Finance Committee simply does not indicate that that is the case. Indeed, in its submission to the inquiry, Recruitment and Consulting Services Association acknowledged that while it believes that the prevalence of illegal and illegitimate labour hire operators is restricted to less than 1 per cent of the recruitment and on-hire sector, it is realistic, in its view, that these illegal and illegitimate operators are unlikely to be members of its or any other industry association.

From a South Australian perspective, SafeWork SA has experienced such issues when investigating incidents where labour hire workers have been injured or raised concerns about their working conditions whilst hosted at large worksites. The labour hire company that supplied the workers was unable to be contacted in response to an incident where a worker suffered a serious injury that resulted in the amputation of the worker's fingers, and inspectors were unable to take any action against the labour hire company.

The inquiry heard evidence directly from workers who were the victims of unscrupulous labour hire operators. In one case the labour hire worker was underpaid wages and superannuation over a two-year period, receiving only two payments of superannuation into their fund. The worker told the committee how she had difficulty getting a hold of anyone from the labour hire company.

When she started making inquiries, she received a text message from the host employer, just a few hours before she was due to commence a shift, advising her that she was no longer required because there was not enough work. She was not able to recover the unpaid income and superannuation from the labour hire company, which folded. The individuals who operated the labour hire company that she worked for started a new labour hire company.

The committee was told how labour hire workers engaged through these questionable operations often do not know who their employer is. They may have a name of a person and an email address, but that is often all. There are no payslips, in many cases, or documentation. At the hearing where these workers were present, a member of the committee from the opposition acknowledged that the legal processes available to protect workers are difficult to enforce when you have companies that phoenix, and that instituting a licensing scheme would help in this regard. Rogue labour hire operators who phoenix in and out of business with the full intention of ripping off workers and the state and undercutting legitimate labour hire operators are not able to be traced in a timely manner and are not able to be held in compliance with existing laws.

It is disappointing that there are some members who do not appear to be supportive of measures designed to assist reputable labour hire providers, given the evidence provided throughout the inquiry that many are struggling to compete with those elements of the labour hire industry who repeatedly and systematically do the wrong thing. These measures include the fit and proper person test, responsible person requirements and the creation of responsibility along the supply chain.

The labour hire licensing scheme proposed in this bill will aid compliance with relevant laws and promote a level playing field, with no competitive disadvantage, for legitimate labour hire operators. It also has the potential to attract labour hire workers to this state, as there will be greater confidence that those operating in the South Australian labour hire sector are acting honestly and ethically.

Mention was made in the other place of the fantastic work that ReturnToWorkSA have done in relation to unpaid premiums by labour hire providers since the Four Corners report. ReturnToWorkSA have improved their forensic financial capabilities and undertaken investigations to ensure labour hire enterprises in the food production industry are meeting their obligations as employers under the Return to Work Act 2014.

A total of 149 forensic investigations into labour hire in food production have commenced. As at September 2017, declared remuneration discrepancies in excess of $100 million have been identified. ReturnToWorkSA are taking action to recover the outstanding premium payable on this undeclared remuneration. Advanced audits of employers in the food producing industry, using learnings from the forensic investigations, are also being conducted where premium leakage is suspected. ReturnToWorkSA works closely with the Australian Tax Office, the Australian Securities and Investments Commission and RevenueSA.

RevenueSA undertakes regular payroll tax compliance. RevenueSA recently undertook an audit of 149 labour hire firms in the food production industry in relation to compliance with legal and taxation responsibilities in accordance with the Payroll Tax Act 2009. As a result of the audit, RevenueSA identified that there were 10 labour hire entities with wage amounts above the threshold of $600,000. Seven were correctly registered, but three could not be located at all. Five of the labour hire firms were reviewed in detail, which resulted in approximately $650,000 in additional revenue detected. The largest individual liability was $543,000. That labour hire firm went into liquidation and the revenue was not received.

If you think about that for a moment, from one industry sector where labour hire operates—the food production industry—ReturnToWorkSA uncovered undeclared remuneration discrepancies in excess of $100 million that premiums are owed on. RevenueSA identified tax liabilities of $650,000, which leaves us to consider what else is not being paid in other sectors. It was summarised during the committee's hearings that if a labour hire provider has 200 workers on the books and they skim two or three dollars an hour from every worker's pay, over a period of time that adds up to a huge amount.

If you also consider other payments, such as superannuation and taxes on appropriate wages that are also potentially not being paid, that is a massive amount of money that is not going into the hands of workers or commonwealth and state revenue. It is going into the hands of unscrupulous companies. Often, when the authorities try to catch them, they disappear.

It is in this context that RevenueSA supports a licensing scheme to aid in compliance. Without a licensing scheme, these unscrupulous operators will continue to operate in the labour hire industry, and regulators and authorities like ReturnToWorkSA and RevenueSA will have to devote considerable time and money to undertake in-depth forensic investigations to recoup money that is owed and then try to recoup what is owed before the company folds.

The Labour Hire Licensing Bill before us will establish a mandatory business licensing scheme for all labour hire operators. The two core elements underpinning the scheme are a requirement that labour hire operators must be licensed in order to operate and supply labour in South Australia and a requirement that a person engaging a labour hire provider for the supply of workers must engage only a licensed operator. The scope of the scheme, in particular the broad definition of 'labour hire services' at clause 6 of the bill, has been the topic of many discussions with stakeholders.

The government acknowledges the concerns that are being raised, but a broad scope and definition of labour hire is necessary and appropriate to achieve the purpose of the scheme. Once you narrow the scope of the scheme, you simply create loopholes for unscrupulous labour hire operators to avoid coverage, and that is not an outcome that the government is prepared to accept. This deliberately broad approach keeps in scope a range of arrangements that people might enter into that would be considered labour hire by a reasonable person. The broad definition represents the complexity of defining labour hire arrangements.

In Australia, the typical labour hire employment arrangement is a triangular relationship between the worker, the provider and the client that a worker is supplied to, as well as variations on this model that can be used to disguise labour hire arrangements. The arrangements generally involve the labour hire company providing a worker to a host employer under the following conditions:

the worker performs duties at the host employer's premises or worksite under the practical day-to-day direction of the host employer;

the worker uses the host employer's tools and equipment and, in many cases, wears the host employer's uniform;

the worker is paid by the labour hire company and has a direct employment or contractual relationship with the labour hire company; and

the host employer pays a contract fee to the labour hire company for the provision of the worker's labour and, accordingly, the host employer has a contractual relationship with the labour hire company.

I wish to make clear that businesses that undertake recruitment leading to direct employment or permanent job places, genuine independent contracting arrangements and workforce consulting services are not within the scope of the bill, neither are work experience or student practical placements organised by an educational institution as part of a course. A number of stakeholders submitted that an arrangement where a worker employed by a business to deliver a service in a domestic capacity, such as a plumber, would be captured by the bill. It is not the intention of the bill to capture such arrangement, and the government has filed an amendment to clarify this.

We do intend to capture employment arrangements in which a labour hire agency supplies the labour of a labour hire worker to a host employer and there is no direct employment or contractual relationship between the host employer and the labour hire worker; rather, the labour hire worker is engaged by the labour hire agency. The meaning of 'worker' in the bill at clause 7 must be considered when determining if labour hire services are being provided. The definition of 'worker' in clause 7 limits the scope of the bill by defining the nature of the agreement between the provider and the worker. A person is only taken to provide labour hire services if the individual they make available to another person is a worker for the purpose of this bill.

In this bill, an individual is a worker if they enter into an agreement with the provider for that provider to supply them to another person to work for that person. This is, essentially, a person who is on the books of the labour hire provider and who may or may not be provided for work at a future time. Other employment agreements, such as for plumbers working in a firm for a wage, are not the same. Their agreement is that they will be doing work for the firm. The bill includes a regulation-making provision that can deal with other arrangements that are not generally within the scope of labour hire, and a government amendment enables circumstances in which a person does not provide labour hire services to be prescribed by the regulations.

The bill also provides the commissioner power to grant a specific person or a specified class of persons an exemption from the bill or specified provisions of the bill. In this way, the bill provides avenues for the scheme to respond to other scenarios, where necessary, to provide further clarification on the scope of the scheme. The government notes that there have been submissions made by some industry bodies that the bill should replace the concept of a person 'supplying' a worker, with the concept of a person 'on-hiring' a worker.

Whilst it is acknowledged that the concept of on-hiring a worker is used in a number of modern awards, and stakeholders are seeking consistency, what must be kept in mind is that the primary purpose of including the term 'on-hire' in modern awards is to ensure that labour hire workers are entitled to the same minimum rates of pay as any other employee. It does not in and of itself seek to define what labour hire services are, nor does the term 'on-hire' have any clearly understood common meaning at law, and adopting that term is not likely to lead to any greater certainty about who is or is not a provider of labour hire services.

There have also been calls to introduce a new requirement that the worker must work 'under the general guidance and instruction of a client, or representative of the client'. While it may be the case in a traditional labour hire arrangement that a worker supplied to the client of a labour hire provider will carry out work under the general guidance and instruction of the client, it is inevitably not always the case. Some workers may work free of guidance or instruction, or upon the guidance or instruction of another source, as has been exposed by the numerous inquiries into the labour hire industry.

As such, the adoption of these changes has the real potential of narrowing the application of the bill so that it excludes labour hire providers that are intended to be captured, and also creates opportunities for those unscrupulous providers to structure their arrangements in such a way as to avoid being captured by the bill. This is exactly the scenario we do not want to create.

The government notes the concerns that have been raised about the inclusion of terms of imprisonment in the criminal sanctions of this bill and calls by some stakeholders for imprisonment penalties to be removed altogether. These concerns have been carefully considered, and the government has filed an amendment to reduce the maximum imprisonment term from five years to three years; however, it is not proposing to remove these sanctions altogether.

In saying that, I highlight that the government is required to act as a model litigant and will only pursue prosecution in accordance with prosecutorial guidelines and in cases where penalties are appropriate. They have been included to ensure that, where warranted, those labour hire providers who systematically contravene the provisions of this bill, or who deliberately avoid financial penalties by liquidating the company, can be held accountable for their actions. They have been included to provide a strong deterrent to those who think they can undermine the integrity of the industry as a whole. The criminal practices of unscrupulous operators cannot be ignored. To allow this state of affairs to continue in South Australia is not an option. We do not think doing nothing is an option.

The bill is a much needed and appropriate response to the evidence of exploitation in labour hire, which has gone on for far too long. The only way to put an end to some of this appalling exploitation and to take the first step to cleaning up this industry is the introduction of a rigorous labour hire licensing scheme. That is what the state can do, and that is what this government will do with this bill. The bill is not about favouring any union or employee or employer body, as some members of the opposition have claimed. This bill is about locking out rogue operators from the industry, protecting vulnerable workers and the integrity of the industry.

I commend the bill to the house. It supports workers, and supports legitimate businesses operating in the South Australian labour hire industry. Key industry bodies such as the National Electrical and Communications Association, the Master Builders Association SA, the CFMEU SA, the Motor Trade Association and the Master Plumbers Association support this bill. Together, these associations wrote to the government and the opposition, expressing their support for this bill to stamp out the exploitation of vulnerable workers and the undercutting of employers who abide by the law. These associations came to the government seeking an amendment to the bill. After further discussions regarding that amendment, the government has agreed to that amendment.

As I mentioned when I commenced this speech, the government made it clear that we were willing to continue to consult on the bill, following its passage in the other place, and we have been very pleased to receive such informative and constructive responses from so many who have an interest in this area. As a result of the comments received, the government has filed a number of amendments to the bill and I will be pleased to address those and other concerns during the committee stage. I commend the bill to the chamber.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. R.I. LUCAS: I think we have had a misunderstanding. I am ready to proceed at the committee stage this afternoon, I hope, but I am not ready to proceed with the committee stage this morning. The minister has just read a very long reply at the second reading and I have asked the appropriate minister's office for a copy of that so that I can consult over the lunch break. I am not in a position to proceed with the committee stage this morning.

The Hon. K.J. Maher interjecting:

The Hon. R.I. LUCAS: What I said was that I was prepared—

The Hon. K.J. Maher interjecting:

The Hon. R.I. LUCAS: Would you like an answer? I was prepared to do the stamp duties budget bill, the research and innovation bill—

The CHAIR: Would you like to report progress?

The Hon. T.A. FRANKS: I indicate that the Greens are more than willing and ready, and we have been waiting to debate this bill for some time now. We have indicated several times in the debate on this bill that it is becoming increasingly urgent. It was number one on the priority list. We are ready to go.

Progress reported; committee to sit again.

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