Self Employed Australia

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“Everyone needs an Advocate”

Self-Employed Australia

Banks and unfair protections

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Tuesday, December 16, 2014

The Banks are opposing unfair contract protections for small business people. Here’s their submission. But NAB were recently found to have engaged in  “…misleading and deceptive conduct … through its bank officer…” and had a mortgage guarantee set aside.

Extracts from the case National Australia Bank Limited v Smith [2014] NSWSC 1605 (13 November 2014) appear below—

BANKING – a bank advanced money to a company for the purchase of a business and took mortgage security over the domestic residence of the company’s principal and his wife to support their guarantees of the bank’s advance to the company – the company defaulted on the loan – the guarantors sold their residence partially to satisfy the Bank’s claims on the guarantees – whether the Bank engaged in misleading and deceptive conduct or unconscionable conduct in relation to the guarantees and the mortgage – whether these securities are unjust under …

Conclusion and Orders
363.    The Court’s principal conclusions may be briefly stated. The Court has found that Craig and Denise Smith, the second cross-claimants are able to set aside the mortgages and guarantees they signed as part of the Statewide transaction which they entered in December 2004 on several grounds, including misleading and deceptive conduct by the Bank through its bank officer, Mr Shackleton, for breaches of fiduciary duty …

Shopping Centre Council and Franchise Council at ‘war’ over unfair contract protections for small business people

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Tuesday, December 16, 2014

ICA is  delighted that the Shopping Centre Council of Australia has joined us in supporting the proposed unfair contract laws. We’ve agreed that the laws don’t need to apply to shopping centre leases, as leases are currently heavily and well regulated by specific state laws. (No need for double regulation!) But the Council says that it will readily agree for the application of the laws to other areas of their businesses such as self-employed cleaners in shopping centres. And now the Shopping Centre Council and the Franchise Council are at ‘war’ over the issue! Here’s an extract—

Paralysed in a tax office trap

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The Australian union movement has been quite open about its campaign to stamp out independent contractors wherever it can. Running parallel to this, it’s instructive to see that the Australian Taxation Office has shifted to a decidedly anti-independent contractor stance over the last few years.  The outcome (intentional or not) is to aid the unions’ objectives.

Last week Robert Gottliebsen described the behaviour of one tax official as demonstrating a “blood lust in the tax office” toward small business people (Call off the small business attack dogs, April 19). This attitude goes deep because it’s entrenched in ATO’s administrative systems. Take this example.

Over about the last two years the ATO has started rejecting more applications by individuals to receive an Australian Business Number (ABN). The implications are significant because effectively, if you have no ABN, you can’t be in business for yourself!

First, under new national business name registration rules, if you don’t have an ABN, you can’t register a business name. And it’s an offence to use a business name that isn’t registered.

Further, if you operate a business without an ABN, anyone paying you is required to withhold 46.5 per cent of your payment and send this to the ATO. No-one can operate a small business under this cash-denying arrangement.

In addition, without an ABN you’ll find it impossible to register under state workers’ compensation schemes and to receive other regulatory registrations and approvals. Also, submitting tenders for government or private-sector work become impossible without an ABN.

By controlling to whom the ATO allocates ABNs, the government has massive big brother/sister type, master control of the make-up and structure of the Australian workforce and business. This works against the original intent of the ABN system, which was to give the ATO significant auditing capacity to detect non-declaration of incomes.

When the Australian Business Number system was established around 2000, the process intentionally gave an ABN to everyone who applied, including individuals. The reasoning was that this supported tax compliance and auditing. The ATO can and does cross-reference ABNs to bank account details and so on. This huge trawling of data enables, or should enable, the ATO to check claimed business income against actual bank deposits and other transactions.

Over about the last few years this started to change. The ATO began to stop allocating ABNs to individuals. If someone’s a labourer, for example, they now automatically have their ABN application rejected.

ABN applications can be done online through an ATO ‘decision-making’  tool. The tool takes applicants through a series of questions to determine if the individual is an employee or contractor. As an applicant steps through questions, different answers trigger alternative additional questions. Eventually the tool will declare the applicant to be either an employee or contractor. If the declaration is ’employee’, an ABN application is rejected.

More recently the ATO tool appears to have undergone fine ‘tweaking’. It’s not noticeable to the casual observer but to others familiar with the tool, the differences are noticeable. Meanwhile, people applying as individuals are having difficulty obtaining an ABN. At Independent Contractors Australia we’ve been receiving a steady stream of information and complaints for around 9 months. People who want an ABN are being told ‘no’ on the basis of allegedly being an employee, according to the ATO.

In my view the legal basis for the ATO setting itself up as a God-like, online determiner of an individual’s employment status is highly questionable. The  ABN legislation is clear that the main objective of the ABN is to enable businesses to interact with the ATO for taxation purposes. The Act’s objectives do not include that an ABN is a determiner of employment or contractor status. It’s perhaps arguable that the way the ATO currently behaves is beyond its legislative authority.

On a practical level the ATO is likely contributing to a growth of the black/cash economy and tax compliance headaches. The ATO automatically gives an ABN to individuals applying under a company, partnership or trust structure. Yet the ATO has tax compliance problems stopping illegal income-splitting and tax avoidance with small companies and trusts.

And imagine the reaction of people who have their ABN application rejected? They either set up a sham company structure or operate in the cash economy, thus more easily avoid declaring their incomes.

On every measure the denial of ABNs works against the social and economic responsibilities of the ATO. Yet why is this happening? Look back to the objectives of the Australian union movement. Denying ABNs is a most effective way of using the power of government to suppress independent contracting.

The contract key that could swing small business

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Tuesday, January 29, 2013

The Abbott Coalition election plan released over the weekend makes some big claims in relation to small business. Chief among these is that a Coalition government will double the annual rate of growth of small business. They believe it’s from small business that more than half of their million new jobs target will be achieved.

But the question is, does Abbott’s Coalition plan contain substance that can make their small business claims look credible? On one issue alone the answer is yes.

In its plan Abbott’s Coalition has reaffirmed its commitment to extending unfair contract protections – currently available to consumers – to small business. Few people probably understand the significance of this and the extent to which it is an economic game changer and major economic reform initiative. The impact cuts across a massive percentage of business-to-business economic activity.

The unfair contract issue first achieved attention in a 2008 Productivity Commission Report. This lead to the introduction of the Australian Consumer Law in 2010 which contained new provisions to protect consumers from unfair contracts.

The idea of unfair contract laws tends to spark angst from many lawyers and sometimes economists who see the concept as an attack against the sanctity of contract. Such critics generally view commercial contract law as being solely dependent upon ‘offer and acceptance’. Anything that interferes with that is an assault against commercial transactions. This narrow view is not, however, how the courts see the common law principles of commercial contract.

Primarily the consumer unfair contract protections codify in statute what is in common law. For example a contract that enables one party alone to vary the terms of a contract without agreement from the other party is unfair and breaches the Australian Consumer Law. (This reference gives a summary of the main unfair contract provisions.)

The original Australian Consumer Law proposal included applying unfair contract protections to small business people as well as consumers. It had cross-party political support. But a powerful big business, big union and (it’s understood) public sector bureaucracy lobby combined and fought hard behind the scenes against this.

In what can only be described as an act of political treachery against small business the federal Labor government excluded small business from the unfair contract protections with the passing of the law in 2010.

The impact this has on limiting small business capability and growth has to be understood.

In conducting their business, small business people only have a theoretical access to the rule of commercial law. The high expense and complexity of securing commercial contract rights effectively excludes the operation of commercial law when a small business person is confronted by big business or government. In this respect small business people are in a very consumer-like situation.

The consequence is that in a vast percentage of commercial transactions, small business people cannot trust the legal system to secure their rights. This failure of the application of law diminishes commercial trust, inhibits and constrains small business activity and reduces the quality and quantity of commercial transactions. It’s bad for the economy and jobs.

For this reason, the Abbott Coalition commitment to unfair contract protections for small business is a much bigger issue than appears on the surface. It will change massively the relationship between small business people and big business and the public sector bureaucracy. The fact is that when big business and big government engage in commercial transactions with small business the contracts are routinely and appallingly one-sided in giving all power to the larger party.

Abbott’s small business unfair contract protections will force a review and rewrite of such big business, big government contracts putting small business people on a more equal footing before the law. This will create a stronger small business environment. This should directly result in a spur to small business growth as claimed and targeted by the Abbott Coalition.

It won’t happen easily however. Several big business lobbyists have gloated to me that they have locked down sufficient influence within the Abbott Coalition to block the small business unfair contract provisions. But with the Abbott Coalition going so public with the commitment over the weekend it would appear that small business is seen as more important by the Abbott Coalition.

Certainly on this issue, Labor has made itself the partner of big business against small business. This seems strange. But within the twisted political deal making culture that Labor has become, big union-big business deals are more important to Labor than is small business.

OHS law tied in knots

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There’s no doubt there’s a significant battle occurring over national harmonisation of occupational health and safety laws. I’ve written extensively over why the laws are badly flawed, almost dangerous. But now the Scouting Association of New South Wales has blown the lid on the laws in a memo they’ve just released to their volunteer leaders.

The scouts have not criticised the laws but rather explained to their volunteers the implications and new policies that must be followed. What they explain applies to every volunteer in every church, sporting and Rotary club, environmental group and so on. It’s not an overreaction to say that the result could well be the gutting of volunteer community work in Australia.

The problem has risen because the new laws are structurally different to what has been in place for many decades. Until now, OHS responsibility existed between businesses and the people who worked in them. But the framers of the harmonised laws have invented a new concept, that of a ‘Person Conducting a Business or Undertaking’ (PCBU). It’s unclear and untested at law as to what this precisely means. In fact, the legislation defines a PCBU as a ‘PCBU’. No help there!

The scouts have explained the practical outcome, however. For them, the number of NSW ‘workers’ for whom they are now responsible has grown overnight from 40 (the number of employees) to 7,000 (employees plus volunteers). The number of workplaces has gone from 16 to 700. I’d expect that this has been a bit of a shock to them.

Their memo explains that scout headquarters has had to quickly put in place new processes and procedures to comply with the new laws. If they had not done this they would be liable in the event of a safety incident. Scouts have always been safety conscious but they haven’t had the broadened liability they now have under the harmonised OHS laws. Activities that were once considered at law to be private activities have now been caught within the new OHS laws.

The outcome is that every game scouts play in their local hall must be vetted and authorised as safe. Camping and bushwalking activities likewise must have declared work safe procedures suitably checked and documented. This creates a liability way outside of the traditional idea of the employer-worker situation that OHS sought to regulate.

In effect, every volunteer scout leader and all parents on the local scout committee are now expected to have the same OHS expertise and resources required of a senior manager at BHP or some other corporate giant.

But here’s the real rub. The volunteer leaders can now be held responsible if something goes wrong. The Scouting Association’s memo states that volunteers will be defended and covered by the Scout Association if the volunteers follow Association policies and procedures. But it also says that, “If you (a volunteer) do not follow directives, policies and procedures, you may be fined.” That is, a volunteer can face personal prosecution and conviction by OHS authorities resulting from their community work.

What the memo doesn’t tell its members is that OHS prosecutions are criminal in nature and that the new laws remove their right to silence, a right normally available to them under standard criminal law.

The memo also doesn’t cover the tricky question of whether the volunteers can be held liable for safety incidents over which they had no control. Say a scout hall caught fire while a scout meeting was in session. The new OHS laws have left open the question as to whether a ‘responsible party’, whoever that might be, could be prosecuted even if they had no control over the circumstances. Volunteers are exposed. I’ve explained this core design problem extensively in the past.

In response to this explanation, I can almost hear the Gillard government claiming this is nonsense and that volunteers have nothing to worry about with the proposed laws. But tell that to the Scout Association. They’ve presumably had good legal advice and on the basis of their memo, they are worried. They are not overreacting.

Further, legislation means what it says and if it’s badly designed and written, the warm assurances of politicians looking after their political ambitions will not change the facts of the law.

The facts are that this new OHS law is fundamentally flawed. It’s bad law, so bad it has the capacity to near destroy the willingness of Australians to be involved in their communities as volunteers. It needs to be fixed, and urgently.

The business of OHS disharmony

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We can now say that the Gillard government’s attempt to harmonise Australia’s occupational health and safety laws appears destined for failure. The latest setback for Gillard is Queensland, the only state that has passed the model OHS laws in full.

Early this month, the Queensland opposition declared the laws to be ‘unworkable’, ‘flawed’ and a ‘bait’ the Bligh Labor government had swallowed. The Shadow Minister for Industrial Relations, Ted Malone, made it clear in his press release that should the opposition win government at the 2012 Queensland election (due by mid-June), the OHS laws will be changed. On current opinion polling, Malone looks certain to be in a position to deliver.

The issues Malone identifies as flawed are common ones I’ve been covering on Business Spectator (Work Safety spins out of control, September 21) for some time. This includes that the model laws remove the right to silence, a protection against abuse of power under criminal law. As such, OHS law is criminal law.

The other is that the model laws do not determine that people are responsible for only what they ‘control’. I’ve done a detailed analysis as to why this is not only critical on justice principles but also to achieving high-quality OHS outcomes—that is, reductions in deaths and injuries. The government’s confusion and double-speak on this issue was apparent in the parliamentary debate in October, where there was a sense of a hidden agenda.

Originally, the model OHS laws were to have been adopted by all states as of January 1 2012. This is now not achievable; in fact, delay could conceivably continue for years. The Victorian and Western Australian governments have made it clear they have deep reservations about the new laws. The Victorian government has commissioned a detailed impact statement due out early 2012. Meanwhile, the legislation was blocked in the upper houses of South Australia and Tasmania within the last month. For South Australia, this is the second time it has been rejected.

The drafting of regulations accompanying the legislation has become messy and mostly not ready for implementation. The key problem around the regulations is that the model laws break from established OHS legal and operational principles in excluding the dependency on ‘control’. Consequently, the regulations have to be drafted within untested concepts that are confused and uncertain.

What’s surprising in this botched process is the buy-in that’s occurred from major industry associations. The Business Council of Australia is just one example. In 2007, the BCA released a report ‘Making Work Safe ‘that established the core policy principles around which they said OHS laws should be structured. The report stated that the idea of all players in the workplace being responsible for what they ‘control’ is the essence of OHS law.

Yet to this day the BCA is still supporting the implementation of the current model OHS laws. This breaches the BCA’s policy. Why would they do this? My observation is that some of the industry associations have so locked themselves into the Gillard-organised OHS agenda that they don’t know how to change position. Further, I’m openly critical of them for taking their eyes off matters of important principle.

Many lessons have been learnt from New South Wales as to what happens when OHS laws hold people responsible even when they have not had control. Prosecutions and convictions occur of blameless people under processes of clear institutional ineptitude by authorities. The Kirk case covered extensively in Business Spectator (Kirk’s legal revolution, February 4, 2010) was the highest profile, but just one of many instances. Thankfully the High Court declared such action illegal.

But the lessons have not been taken on board by organisations representing the ‘big end of town’. This is a similar scenario to the Fair Work Act. Gillard corralled business associations into agreeing to FWA. Business members now feel jilted by an FWA that’s working against sensible business operations. With the harmonised OHS laws, big business risks again discovering the damage too late.

Fortunately, a majority of state governments and parliaments are taking the lead where major industry associations are failing. But this is a consequence of much hard effort from many small business organisations arguing the case of flawed laws.

What’s apparent is that harmonised OHS laws are not progressing because the model being pushed is bad law. What could happen is that the states take control and amend and fix the laws. Harmonisation then has a chance to happen. Big business must wake up and seize this opportunity.

Harmony lacking on nation’s work safety laws

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The Gillard government’s attempt to harmonise the nation’s work safety laws is, on current evidence, suffering a slow death.

Originally hailed as one of Julia Gillard’s great negotiating triumphs, the legislation is falling over because of fundamental and even dangerous flaws in its core design.

There are two key dangers. One is the startling discovery that the new laws remove every Australians’ right to silence, a primary human right under criminal law.

Occupational health and safety law is criminal law, and the removal of this right will inevitably lead to abuses of the prosecution process.

Such abuse was evident in NSW under that state’s manifestly unjust occupational health and safety laws operating between 2000 and this year.

One NSW judge referred to the abuse of process in a state prosecution of the mining giant Xstrata as persecution rather than prosecution.

It was Xstrata’s individual managers who suffered at the hands of the NSW prosecutor. Expect similar abuses under the harmonised OHS laws.

The other major danger also relates to a legislative structure that will allow abuse of the prosecution process. OHS law in most states has been structured around the internationally accepted principle that everyone is responsible for safety according to what is under their “reasonable and practicable control”.

These words tied together ensure that every person in the work situation is held responsible and liable for safety. That is how it should be.

The NSW abuses of justice occurred because the 2000-11 laws did not have the words “reasonable, practicable control”.

OHS prosecutions and convictions occurred because people who had no control over a work safety incident were tried and convicted.

The harmonised laws have excluded the word “control” so people will be held responsible according to what is “reasonable and practicable”.

Lawyers are in furious disagreement over what this means. The warning signals are glaring, however. It is inevitable that prosecutions will occur against people who will have had no control of a work incident.

Predictably, NSW-style prosecution abuses will be repeated, leading to extensive appeals to discover what the legislation means. Expect this to take at least a decade.

The outcome is that the core structure of the harmonised OHS laws is bad law. It is taking the people and businesses of Australia from certainty and clarity to confusion.

Quite oddly the “big end of town” business associations signed off on the laws and continue to promote them. On any measure they are selling their member businesses and business executives a dangerous “dog”.

Their members will feel the pain not the associations. The Business Council of Australia, for example, is ignoring its own 2007 report and recommendations on OHS, “Making Work Safe”. This called for “reasonable, practicable control” in the laws.

The reasoning for the rush to harmonised laws by the big business organisations seems to be that beneficial regulations have been crafted for many industries.

The business associations have focused on the alleged benefits of the regulations and think they can live with the legislative dangers. At least they think they can make changes later. If this is so, it portrays a flippant disregard for justice principles and practices.

Not all industry associations are aligned with the thinking of the big end of town.

Many of the industry regulations and most of the codes of practice have not yet been written or finished. Some early regulation drafts caused uproar in some sectors for the irrationality contained in the drafts. The housing industry is just one example.

The list of organisations calling for the harmonised laws to be amended is already large. This includes the Housing Industry Association, Master Builders Association, Motor Traders Association, Australian Hotels Association, Civil Contractors Federation, Independent Contractors Australia, Council of Small Business of Australia and Self Insurers of SA and Business SA naming just some.

State parliaments and governments have smelt a problem. This week the South Australian Liberal opposition moved to defer legislative debate until February and won support in the upper house.

The West Australian government has long held concerns and has delayed consideration until well into next year.

The Victorian government has taken the same position as WA and deferred consideration pending the outcome of a Victorian review into the implications of the laws.

The Tasmania parliament seems unlikely to proceed with the laws this year. The Queensland opposition has reserved its right to amend the laws should it win government in next year’s election.

The alleged date for the start of the national harmonised laws, January 1, next year, is now unachievable. The process has ground to a halt. This need not be the case. It is demonstrable that the laws as currently drafted are a backward step from existing laws.

The cause of safer work will go backwards. Most states are concerned, as are a range of businesses. It is time to make amendments so harmonisation of OHS can proceed.