Kill the Bill?

2 August 2006

Independent Contractors of Australia has studied the publicly available submissions to the inquiry and in this briefing note makes comment on a range of those submissions. The submissions referred to here either completely oppose the Bill or call for such substantial changes to the Bill that the protections for independent contractors envisaged under the Bill would effectively be destroyed.

ICA has found that many of the complaints referred to here lack depth of analysis, misrepresent facts and are often misleading. Some resort to sloganeering rather than analysis. ICA puts alternative facts and views in response.

[Please note: The summaries of submission arguments ICA supplies here are not meant to be complete. These are generalised descriptions of clusters of positions which share some common ground. As such, they do not convey all the detail in the individual submissions surveyed here. The source for that level of detail is clearly the submissions themselves.]

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The arguments against the Independent Contractors Bill

Opposing Argument A
The Bill would adversely affect the rights of employees.
Independent contractors themselves are bad/cannot possibly exist in some sectors.

Summary of arguments: Allowing independent contractors the security of self-employment status attacks the rights of employees. It appears that the idea is that independent contractors create competition for employees and that this drives down employees’ capacity to act collectively. The concept appears to be that it’s necessary to restrict or control the capacity of people to be independent contractors so that collective action is protected.

Independent contractors accept lower remuneration and so put competitive pressure on employees. This creates a ‘race to the bottom…’ and generates claims that there is a ‘…deleterious economic and social effect of the spread of independent contracting…’

Independent contracting legitimizes and institutionalizes the avoidance of obligations to workers and permits ‘what is essentially an employment relationship to be legally recognized as a commercial relationship through the mere stroke of a pen…’

All outworkers are employees. There is no such thing as an independent contractor in the outworker clothing sector.

Arguments put by
Australian Institute of Employment Rights: Monash University
Australian Manufacturing Workers Union
Victorian Trades Hall Council
Australian Rail, Tram and Bus Industry Union
Fairwear

Independent Contractors of Australia response
ICA totally rejects the idea that the existence of independent contractors reduces the rights of employees. Employee rights are secured under employment law. If there are any problems with employment rights, they should be addressed under employment law.

Independent contractors are, in fact, liberated from the negative yoke of employment. Those who complain about and decry the existence of independent contractors should take a hard look at the negativities of employment. It is this that causes people to reject employment.

ICA says that if ’employment’ produces so many negatives in people’s lives that they are rejecting it, then this is no reason to reject the alternative, namely, independent contracting.

Opposing Argument B
Dependent Contractors:
There are people who work only for one client. They are, therefore, ‘dependent’ and should be treated as employees. Several cases are referred to, for example, Damevski v Endoxos (a cleaner in ACT). Such workers are indistinguishable from employees.

Arguments put by
Australian Institute of Employment Rights: Monash University
Victorian Trades Hall Council
Australian Education Union
Australian Manufacturing Workers Union
Liquor, Hospitality and Miscellaneous Union
Association of Professional Engineers, Scientists & Managers Australia
Queensland Teachers Union
ACTU

Independent Contractors of Australia response
This is an invalid argument which has recently been rejected by the ILO. The ILO refers to ‘dependent workers’ as employees. It recognizes that the existence of only one client for an independent contractor does not create ‘dependence’. There are many other factors that must be considered before dependency can be identified.

Opposing Argument C
The definition under the Bill is too broad and inexact: Common law is no good
The common law definition is vague and confusing. The Bill should have a tighter definition. Common law is a false distinction. It is not reliable and should not be used. Common law creates a legal fiction. There are too many definitions under different laws.

Arguments put by
Victorian Trades Hall Council
Australian Manufacturing Workers Union
CFMEU
ACTU
Australian Rail, Tram and Bus Industry Union
Australian Institute of Employment Rights: Monash University

Independent Contractors of Australia response
This is wrong. Common law is totally clear on the difference between an independent contractor and an employee. It is discovered by considering the nature of the contract in place. The ILO undertook the first ever global survey of definitions and published a report in 2005. The ILO found that the definitions were quite clear and established across the globe. Common law processes were an integral part of the ILO’s investigations. According to the ILO, an employee is in a dependent relationship and an independent contractor is not dependent. A dependent worker is an employee.

The IC Bill correctly uses common law. More confusion would be created if statute law tried to replicate or codify common law. What is needed is a broad education campaign on the common law definitions.

ICA has produced considerable educative material on this issue on our website at www.contractworld.com.au.

Opposing Argument D
Disguised/sham employment
The Bill will not stop the incidence of disguised employment. The Bill is too weak in that a person only needs to say they ‘reasonably believed’ the contract was not a sham to defeat the charge.

Arguments put by
ACTU
CFMEU
Australian Institute of Employment Rights: Monash University
Victorian Trades Hall Council
Australian Rail, Tram and Bus Industry Union

Independent Contractors of Australia response
This view is wrong. If enacted, the IC Bill will without doubt be the strongest legislation to combat disguised employment world-wide. It is doubtful that any other country has similar provisions designed specifically to prosecute for sham arrangements and to impose fines for doing so. In fact, the Bill is probably too strong in that it applies a presumption of guilt against an accused. This is a concern given our common judicial principle of the presumption of innocence.

ICA strongly opposes the provisions in the Bill that allow for unions to conduct a sham contract prosecution. Because of the gravity of the accusation—it is akin to an allegation of fraud—only a government authority should be allowed to prosecute.

Opposing Argument E
The ILO Recommendations:
The Bill fails to take account of ILO standards. The ILO calls for the combating of disguised employment. The 2006 Recommendation calls for tighter definitions.

Arguments put by
Australian Manufacturing Workers Union
Australian Institute of Employment Rights: Monash University
CFMEU

Independent Contractors of Australia response
This is a complete misrepresentation of the ILO 2006 Recommendation. The key clause in the Recommendation (clause 8) sets the parameters under which all other 23 clauses operate. Clause 8 states that employment regulation should not intrude into commercial contracts. This is precisely what the IC Bill seeks to achieve. It is within the context of keeping employment regulation out of commercial contracts that the ILO addresses disguised employment. The IC Bill is probably a world first in putting the ILO Recommendation into effect. The IC Bill has very strong provisions for the outlawing of disguised/sham arrangements.

ICA’s submission to the Senate inquiry addresses this issue in detail. Full details on the ILO Recommendation are available on ICA’s website at www.contractworld.com.au.

Opposing Argument F
Excessive working hours will result from the IC Bill.

Arguments put by
Australian Institute of Employment Rights: Monash University

Independent Contractors of Australia response
It is totally false to suggest this. The IC Bill will not affect the hours that anyone works.

Opposing Argument G
OHS
Injuries will increase because of the IC Bill: Lower pay rates for independent contractors will undermine health and safety behaviours. Labour hire independent contractors are not ‘protected’. Independent contracts shift OHS responsibilities to the worker.

Arguments put by
Australian Institute of Employment Rights: Monash University
Victorian Trades Hall Council
New South Wales Teachers Federation
Australian Rail, Tram and Bus Industry Union
Association of Professional Engineers, Scientists & Managers Australia

Independent Contractors of Australia response
This is totally wrong. OHS laws are completely separate from the IC Bill. The IC Bill has no impact on OHS laws. ICA is a strong supporter of OHS laws that require everyone at work to be responsible and liable for their actions. This is the only way to achieve safe work situations. In this respect, ICA is a supporter of the Victorian OHS laws and the announced changes to the NSW OHS laws.

Opposing Argument H
Workers’ compensation schemes will be damaged. The cost of workers’ compensation will be shifted to families and the general health scheme.

Arguments put by
Australian Institute of Employment Rights: Monash University
Victorian Trades Hall Council
Queensland Teachers Union
ACTU
Government of South Australia

Independent Contractors of Australia response
This is totally wrong. Workers’ compensation laws are entirely within a separate legal domain, mostly within the States’ jurisdictions. The IC Bill does not affect these laws at all. There is, however, an urgent need for the States to clarify and fix the confusion that they have created under some of their workers’ compensation laws.

Opposing Argument I
Skills and training will be adversely affected

Arguments put by
Australian Institute of Employment Rights: Monash University

Independent Contractors of Australia response
This is wrong. The issue of skills training are generic to all workers whether they are employees or independent contractors. The IC Bill does not affect this policy area in any way. Skills training is a much larger issue, partly related to the capacity of the education and training systems to adapt to changing business and worker demands and needs.

Opposing Argument J
Procedures for settling disputes need to be speedy, inexpensive, fair and efficient: this can only be achieved through the IRC. The Federal Court and the Magistrates Court are not acceptable.

Arguments put by
Australian Institute of Employment Rights: Monash University
Australian Rail, Tram and Bus Industry Union

Independent Contractors of Australia response
The IRC has proven to be a highly expensive and complex process for resolving disputes under employment contracts. Independent contractors are much better off being removed from the IRC process altogether.

The use of the Federal Magistrates Court should improve the speed and simplicity of dispute resolution and should lower the costs. The IC Bill also allows for mediation services which should greatly assist this. However, ICA believes that more could be achieved by ensuring that small claims processes are available and secured—either in the States’ jurisdictions and/or by making small claims available through the Federal Magistrates Court.

Opposing Argument K
Superannuation: The existence of independent contractors creates avoidance of SGA

Arguments put by
Victorian Trades Hall Council
CFMEU
ACTU
Government of South Australia
Brotherhood of St Laurence

Independent Contractors of Australia response
The SGA laws are specific tax laws. The issue of payment or non-payment of SGA for independent contractors is confused, but is an item that needs to be addressed under tax law. ICA strongly recommends that the confusion be removed. However, the IC Bill has no impact in any way on the SGA laws.

Opposing Argument L
Taxation 1: The existence of independent contractors creates tax avoidance and evasion. The risk to the tax base could be as much as $14.38 billion per annum.

Arguments put by
Victorian Trades Hall Council
Australian Manufacturing Workers Union
CFMEU
Unions NSW
ACTU
Australian Rail, Tram and Bus Industry Union

Independent Contractors of Australia response
This is an argument that has been totally superseded by the reforms to taxation in Australia during 2000 to 2002 under the PAYG and PSI legislation.

The PAYG legislation has secured the ATO’s legal capacity to require income tax withholding for all independent contractors through both the BAS provisions and the labour hire provisions in the legislation.

Rates of tax and deduction eligibility have for the most part been resolved through the PSI legislation, although some minor issues are subject to court direction for resolution. The ATO has a programme in this regard.

Where illegal evasion is occurring, this happens with both employees and independent contractors, as well as with companies and all other taxpayers. Illegal evasion is not a direct product of being an independent contractor or any other legal status. It is a product of people acting illegally.

The IC Bill has no impact at all on these tax laws and is isolated from them.

Opposing Argument M
Taxation 2: The IC Bill may deny contractors the opportunity to claim legitimate tax deductions.

Arguments put by
Association of Professional Engineers, Scientists & Managers Australia

Independent Contractors of Australia response
This is false. Eligibility to claim tax deductions for independent contractors is exclusively controlled by the Personal Services Tax legislation. The IC Bill will have no impact on, or implications for, this tax law.

Opposing Argument N
Unfair contract applications
Under the IC Bill, only a party to the contract can make an application. This stops unions making applications. Workers would be frightened to make applications. Unions should be able to make an application. No union role means no human rights.

Arguments put by
Victorian Trades Hall Council
ACTU
Uniting Care: NSA/ACT (a funder of Fairwear)

Independent Contractors of Australia response
There is nothing in the IC Bill that would stop independent contractors from using a union to assist them in the conduct of an unfair contract allegation or associated case. In fact, unions should play this role. But it is normal and correct that, under commercial law, only parties to a contract can raise a dispute issue under the contract. This is accepted legal practice. If unions (or any other person not a party to the contract) had the capacity to lodge an unfair contract action without the consent of a party to the contract, this would provide opportunities for malicious interference in contracts.

Opposing Argument O
Clothing outworkers: Remove Part 4. The Bill reduces protections because it means outworkers are only entitled to a ‘minimum’ rate of pay. Unions should control the process of demanding business financial records. 329,000 clothing homeworkers are being paid as little as $3.60 an hour.

Arguments put by
Victorian Trades Hall Council
Australian Education Union
ACTU
Fairwear
Uniting Care: NSA/ACT (a funder of Fairwear)
Brotherhood of St Laurence

Independent Contractors of Australia response
There is clear evidence that the figure of 329,000 outworkers is a fabrication. The actual numbers are more likely to be in the low thousands. ICA also has evidence that the allegation of a $3.60 per hour pay rate is false and that some supporters of this figure are on the record as liars in this regard. Evidence of lying for the purposes of public relations stunts can be produced.

The IC Bill rightly protects the remuneration of outworkers by guaranteeing minimum rates. It is not appropriate for the IC Bill to dictate the ways in which outworkers undertake their self-employment.

Opposing Argument P
Bad for Education: If independent contractors were used in the public education system, this would diminish control over teachers in the system.

Argument put by
Queensland Teachers Union
Australian Education Union

Independent Contractors of Australia response
There is no difference in public education in terms of system ‘control’ from any other enterprise. The principles of enabling correct and accurate control of the system are readily addressed should the public education system seek to use independent contractors. In fact, with the looming shortage of teachers, independent contractors may be one method for dealing with shortages.

The IC Bill, however, would not of itself create a requirement for teachers to be engaged as independent contractors. It would simply ensure that there was improved certainty in arrangements should State public systems choose to move in this direction.

Opposing Argument Q
Students and young workers
These people will be forced into underpaid jobs as independent contractors.

Arguments put by
Australian Education Union
New South Wales Teachers Federation
Queensland Teachers Union

Independent Contractors of Australia response
ICA firmly holds the view that it is highly unlikely that people under the age of 18 can legally become independent contractors. It is highly unlikely that a youth is in a position to clearly and legally have the genuine intent necessary to be an independent contractor. Youths who are allegedly in independent contractor work are likely to be found to be employees at law. Businesses that persistently seek to require youths to be ‘independent contractors’ should be subject to investigation under the sham contract provisions of the IC Bill.

Opposing Argument R
Contract Chain. Stops laws that force commercial obligations on entities up the contract chain. Pushes costs down the chain. There is a need to regulate outside of contract relationships.

Arguments put by
Unions WA
CFMEU
Government of South Australia
Brotherhood of St Laurence
Fairwear

Independent Contractors of Australia response
Imposing commercial obligations outside of commercial contracts is a dangerous breach of contract law. This has been done under State outworker legislation and is a primary reason for loss of jobs and a failing domestic clothing sector. The IC Bill correctly imposes commercial contract obligations in relation to outworkers where (and only where) contracts exist. This will improve the health of the industry and create more jobs.

Opposing Argument S
Contracting not under attack. State IR deeming laws not bad
Exclusions under Bill should extend to other independent contractor types

Arguments put by
Unions NSW
CFMEU
Uniting Care: NSA/ACT (a funder of Fairwear)
Association of Professional Engineers, Scientists & Managers Australia

Independent Contractors of Australia response
Independent contracting and contracting itself is under attack by State deeming laws that breach key established notions of commercial law. The State IR deeming laws need to be overridden to protect Australians’ right to engage in commercial contracts under known commercial laws.

Opposing Argument T
Bad for migrant workers (for example, those with temporary 457 work Visas)

Arguments put by
CFMEU

Independent Contractors of Australia response
The migrant worker issue is not an item that could be or should be included in the IC Bill. It is not relevant to the Bill and is an issue handled under migration policy. Raising this argument in the context of the IC Bill is a diversion from the real issues.

Opposing Argument U
Human Rights: The IC Bill breaches human rights
‘People’s human rights do not change depending on whether they are on employment or commercial contracts’.

Rejects Independent Contractors of Australia’s view that commercial contracts ‘are automatically good’.

‘Human rights instruments and the ILO conventions require that workers be able to act collectively’.

Arguments put by
Uniting Care: NSA/ACT (a funder of Fairwear)

Independent Contractors of Australia response
The Bill does not breach human rights, but rather secures them. Every human has a right to escape the wage-slave bondage of the employment contract if they wish. Every human has the right to be his or her own boss.

Care must be taken not to suggest that ILO conventions require workers to act collectively. The ILO only requires that the opportunity to act collectively is secured. Nothing in the IC Bill prevents or inhibits independent contractors from acting collectively.