Law allows Myer to outsource responsibility for labour hire workers

When cleaners for Myer last week called the retail giant out for underpaying them, it wasn’t the first time.

The cleaners were hired as independent contractors by Myer supplier Spotless, and subsequently assigned to work for Myer. The department store released a statement pointing this out and arguing it was Spotless that was their formal employer.

In Australia, as in many other countries, companies are legally entitled to use third parties to help supplement their workforce. They can, for example, outsource labour through trilateral working arrangements such as labour hire, where a supplier engages workers and supplies them to a host company, in exchange for a fee.

This is legitimate and legal, unless the labour hire business is found to act as a mere screen between the employees and the host company. In this case the host company is deemed to be the actual employer.

Provisions under Australia’s modern awards apply to labour hire employees, but labour hire itself is largely ungoverned by specific legal provisions. This legislative loophole has seen a surge of unscrupulous practices aimed at shifting the real employer’s responsibilities onto third – sometimes less reliable – parties.

There is now a Victorian inquiry into labour hire and insecure work, with a submission deadline of November 27, 2015.

We have previously analysed the issues of “dodgy” labour hire contractors operating in the horticulture sector and the exploitation of migrant workers on Australian farms.

Labour hire workers perform their activities under the instructions of and for an entity that is different from the one that hires them and pays their salary. This can jeopardise the protections associated with the standard bilateral employment relationship – such as unfair dismissal laws, occupational health and safety, collective rights and other working conditions like a minimum wage and paid leave entitlements.

Under the current law, it is sometimes difficult to identify the actual employer and, secondly, qualify the worker either as an employee or independent contractor.

The system of engaging labour hire workers as independent contractors - considered legitimate in the past - in light of some of the latest court decisions, has been mostly deemed sham contracting, unless skilled workers are involved.

Even when the employee status is not an issue, if the labour hire business, as in most cases, is deemed to be the employer, the unreliability of most fly-by-night operators makes it difficult to successfully enforce workers' rights.

In many continental European countries that have ratified the relevant ILO Convention, instead, labour hire workers are identified by the law as employees of the supplier and can be hired either on a fixed term or on an open-ended basis. Moreover, unlike in Australia, the legislation provides a joint-liability regime between the labour hire business and the host company, as well as a strict control over the labour market intermediaries by means of a stringent licensing system.

Labour hire can play a positive role in the labour market, despite many Australian labour hire employees being vulnerable to unscrupulous practices aimed undercutting labour conditions. The presence of specialised intermediaries can improve the efficiency of the job matching process, and such arrangements also function as a springboard towards standard employment or at least provide the opportunity for such workers to remain employed.

But the issues of sham contracting and the association with phoenixing activity aimed to elude, among others, employment obligations, need to be tackled and addressed both at state and at federal level. The current Victorian inquiry could be the start of a new approach towards the regulation of labour hire in Australia.

Maria Azzurra Tranfaglia does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.