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ICA's Response to Questions contained in DEWR discussion paper 'Proposals for Legislative Reforms in Independent Contracting and Labour Hire Arrangements

May 2005

SECTION A: Frameworks for answering the questions

Independent Contractors of Australia refers to the independent contractor route as the 'workforce superhighway'. Independent contracting is good for Australia because it enables people to be self-reliant, thereby reducing dependency on the state. Independent contracting is a practical, sensible way in which people can advance their working lives. It can act as a stepping stone through life's changing circumstances. It serves its participants well.

Australian public policy should enable people to embrace the benefits of being an independent contractor.

1. The public policy frameworks
The following public policy principles provide the reference points for answering the DEWR questions.
  • Industrial relations regulation should be confined to issues between common-law employees and employers.
  • Regulation of the commercial contract should be entirely excluded from industrial relations regulation and entirely regulated under commercial and competition law.
  • Independent contractors are defined at common law as persons who work through the commercial contract. As such, the regulation of independent contractors should not be within the reach of industrial relations regulations, but should fall entirely under commercial and competition law.
  • The issues relating to regulating independent contractors are precisely the same public policy issues relating to the regulation of commercial contract transactions that ensure market economies and open economic societies.

    2. Key Objectives of the Independent Contractors Act
    The Independent Contractors Act should be targeted to---
    2.1) Enable independent contractor status to be quickly and cheaply identified by:
    a) Stating the criteria for status determination at common law.
    b) Retaining common-law courts as the process for making determinations.
    c) Placing the stated intent of parties as a key determiner under common law.
    2.2) Enable contract disputes involving independent contractors to be quickly and cheaply resolved by having:
    a) Dispute-resolution criteria that support commercial contract integrity.
    b) A small-claims type process for small-value disputes.
    c) Common-law courts retained for large-value disputes.

    3. Policy frameworks for contract dispute determination
    3.1) Trust in commercial transactions is important to economic activity Speedy and low-cost resolution of contract disputes can therefore assist economic activity. Currently, legal costs associated with resolving low-value contract disputes frequently exceed the value of the disputes. This damages contract integrity and hence economic activity.

    3.2) Small-claims-type processes, similar to consumer, small-claims processes, should be available so that:
    a) Legal representation for disputes below certain values is excluded.
    b) Only parties to the dispute have rights to appear.
    c) Criteria for resolution are consistent with commercial contract law and do not include industrial relations-type criteria_for example, courts should not determine the price of a contract.
    d) Determinations have application only to the dispute at hand and are not applicable to a 'class' of contracts.

    3.3) Ordinarily, the Fair Trading acts of the States should be the natural jurisdiction for contract dispute-resolution for independent contractors. The States, however, have a recent history of
    a) breaching commercial contract principles in their Fair Trading acts by inserting industrial relations-type criteria in their trader-to-trader dispute processes---for example, (1) powers to control contract prices; (2) powers to control 'classes' of contracts.
    b) extending industrial relations jurisdictions to commercial contracts, thereby damaging commercial contract integrity and adversely affecting economic activity.

    Where the States breach commercial contract regulation principles, such breaches should be overridden. [Please see the associated analysis paper 'Destroying Contracts'.]

    4. Policy frameworks for Labour Hire
    4.1) Labour hire has two forms.
    a) Employment labour hire: A commercial contract exists between the user and the agency and an employment contract exists between the agency and the worker.
    b) Independent contractor labour hire: A commercial contract exists between the user and the agency and a commercial contract exists between the agency and the worker.

    4.2) Where employment labour hire exists, the employment contract between the agency and the worker should be regulated under industrial relations law. The commercial contract between the agency and the user should be governed by commercial regulations.

    4.3) Where independent contractor labour hire exists, both contracts should be regulated under commercial law.

    5. Policy framework for workers' compensation, taxation, equal opportunity and anti-discrimination and OHS
    5.1) Each of these areas of law has separate and distinct public policy objectives which should not be corrupted, confused or diminished by linking across to commercial contract and employment contract regulations. For example, taxation law should not be used to determine equal opportunity objectives. Another example is that taxation law should not be used to determine industrial relations and/or commercial objectives.

    5.2) Each public policy area should look to its own objectives and construct law or regulation specifically directed to those objectives. Attempts to create one definition of 'employment' and/or 'independent contracting' which has universal, jurisdictional application to disparate public policy areas has proven a fatally flawed approach which corrupts public policy objectives.

    6. Policy frameworks for proposed legislation
    6.1) The Independent Contractors Act should be a stand-alone Act. In other words, it should not be an amendment to the Workplace Relations (WR) Act.

    6.2) The WR Act will need amendment to (a) clarify that the WR Act does not have jurisdiction over independent contractors and/or commercial contracts (b) ensure that employment labour hire is appropriately embraced within the Act.

    6.3) The Trade Practices Act (TPA) may need amendment to (a) reflect the intent of the Independent Contractor Act to have jurisdiction over independent contractors (b) clarify that independent contractors come within the policy reach of the TPA.

    6.4) The Equal Opportunity Act may need amendment to ensure that independent contractors cannot be discriminated against.

    6.5) Dialogue should occur with the States with a view to harmonizing the Fair Trading acts to ensure (a) that the Fair Trading acts to do not breach commercial contract regulation principles and (b) do not introduce industrial relations-style processes into the Fair Trading acts by stealth. Alternatively, the Independent Contractors Act should override the States in this respect.

    SECTION B: Responses to questions contained in the DEWR discussion paper

    1. The WR Act should be amended to provide that awards and agreements cannot contain clauses which restrict engaging independent contractors or impose conditions or limitations on their engagement.
    Yes. Restrictive clauses, in effect, constitute discrimination against independent contractors by diminishing their rights to access work. Amendments to equal opportunity and anti-discrimination legislation should also be considered to outlaw such discrimination.

    2. Should the current common law definitions of independent contractor and employee be retained for the purpose of the WR Act, with courts determining the question using established common law principles?
    Yes. The stated intent of parties, however, should be placed as a high priority in common-law considerations, but still within the context of courts making decisions based on the full matrix of tests. People need contract certainty to the extent this can be achieved. If, at the outset of entering independent contractor contracts, parties make clear statements of intent to use independent contractor arrangements and the statements of intent have a high measure of reliability, then contract integrity is enhanced. Statements of intent should be able to be withdrawn, but if they are still current, should create a presumption of independent contractor status.

    3. Should the personal services business test under the Income Tax Assessment Act 1997 be adopted as the sole definition of 'independent contractor' for the purposes of workplace relations regulation?
    No. The tax act and workplace relations regulation should not be legislatively tied together. Tax law and workplace regulation target separate and distinct social and economic objectives and should apply definitions exclusively on the basis of those distinct policy objectives.

    4. Should the personal services business test under the Income Tax Assessment Act 1997 be adopted as part of the definition of 'independent contractor' for the purposes of workplace relations regulation?
    No---For the same reasons as stated in 3 (above).

    5. Should an 'Independent Contracting Registrar' be established to make declarations about employee/independent contractor status applying the appropriate tests?
    No. Status determination should be left to the common-law courts. The government could, however, take initiatives to ensure that the community is educated about the common-law tests for independent contracting.

    6. Should an object be added to section 3 of the WR Act to the effect that the status of independent contractors should be upheld and subject to minimal industrial regulation?
    The WR Act should be amended to the effect that the status of independent contractors should be upheld and subject to no industrial regulation. Independent contractors should be entirely subject to commercial and competition regulation.

    7. Are there any State laws other than workplace relations laws (such as workers' compensation, anti-discrimination or OHS laws) containing independent contractor provisions which the Commonwealth should consider overriding?
    Yes. There are also federal laws that need reviewing.

    7.1) Workers' Compensation: A major source of confusion is that State workers' compensation schemes prevent independent contractors from being covered, yet apply 'deeming' provisions that declare many independent contractors to be in their schemes. This inconsistent public policy creates high level confusion and tension. The Commonwealth could consider allowing independent contractors access to the Commonwealth workers' compensation scheme to overcome the States' policy shambles. If independent contractors were to access the Commonwealth scheme, State 'deeming' provisions would need to be overridden to prevent independent contractors being forced to have double insurance.

    7.2) OHS: OHS laws are primarily State responsibilities. The Commonwealth, however, has new international obligations under ILO Convention 155. The needs and rights of independent contractors in relation to OHS should be addressed within the broader perspective of achieving national adherence to C155.

    7.3) Anti-discrimination and Equal Opportunity: The Commonwealth should look to its own legislation and that of the States to ensure that
    a) where the legislative construct 'deems' independent contractors to be employees, that such deeming be removed. Instead, legislation should follow the PAYG model where independent contractors are specifically referred to, embracing them appropriately within the legislative objectives;
    b) discrimination against independent contractors, particularly in relation to matters to do with work, should be clarified as unlawful.

    7.4) Payroll Tax:
    a) The States produce the same policy confusion as they do with workers' compensation---namely, they do not apply payroll tax to independent contractors, yet then declare many forms of independent contracting to be subject to payroll tax. This creates commercial uncertainty and confusion.
    b) The States also apply selective relief from payroll tax, creating discrimination. For example, the States cannot charge the Commonwealth payroll tax. Yet when the Commonwealth engages staff through labour hire, the States charge payroll tax. The Commonwealth should look to ensure that where the Commonwealth engages staff either directly, or through labour hire, the States cannot charge payroll tax.

    7.5) Job Network: The Commonwealth does not pay Job Placement fees for the placement of job seekers into self-employment or independent contracting. This denies Job Placement opportunities for job seekers who could access the 28 per cent of the private sector where independent contracting prevails. The Commonwealth should look to allow Job Placements fees for the placement of job seekers into independent contracting.

    8. Should the proposed Independent Contractors Act override State and Territory unfair contracts laws and seek to cover the field (as far as constitutionally possible) for unfair contracts provisions?
    Yes. For a full commentary please see our attached analysis paper 'Destroying Contracts'.

    8.1) The idea of 'unfair' contracts is an industrial relations concept and not appropriate for independent contractors. Instead, independent contractors should be able to appeal to 'unconscionable' and/or 'unjust' contract provisions which are consistent with existing commercial common law.

    8.2) State and Territory industrial relations laws which seek to extend their jurisdiction to commercial contracts and independent contractors should be overridden by the Commonwealth.

    8.3) Where States and Territories seek to use their commercial laws to create industrial relations-type provisions about unfair contracts, these too should be overridden by the Commonwealth.

    Brief explanation:
    8.4) No price-fixing: Commercial activity in a society is maximized when commercial trust is maximized. Government inhibits commercial trust, however, when it supposes that it can determine the terms of contracts ---particularly where government seeks to impose prices under contracts. The States have been active in using their industrial relations laws and more recently commercial laws (under trader-to-trader provisions) to impose price-fixing on commercial contracts. The Commonwealth should seek to override and prevent this activity.

    8.5) Small claims for independent contractors: Independent contractors typically face contract disputes involving relatively small amounts of money. Usually, the cost of litigation for recovery exceeds the value of the dispute. As a result, commercial trust is damaged. Government can assist commercial trust by creating laws which facilitate contract dispute-resolution in a cost-effective manner. There is a need for small-claims-type processes for independent contractors similar to consumer small-claims-type processes. The key features being:
    a) Only parties to the contract can initiate proceedings;
    b) Legal representation is prohibited for disputes below specified dollar values;
    c) The dispute is determined strictly according to the terms of the contract;
    d) Where the contract is unclear, the dispute-resolution process includes clarifying and declaring the terms of the contract;
    e) Determinations can only apply to the specific dispute under consideration and cannot be applied to a broader 'class' of contracts.

    The Commonwealth should work with the States to harmonize the trader-to-trader and other small claims provisions in the Fair Trading and other commercial acts with a view to maximizing contract integrity. Where the States will not agree to harmonization, the Commonwealth should create a Commonwealth small claims-type jurisdiction for independent contractors.

    8.6) Trade Practices Act: The capacity of the States to breach commercial and competition law in their Fair Trading and other acts is most frequently dependent on either (a) the ACCC granting dispensation to the States to breach the TPA on 'public interest' grounds or (b) the States passing legislation excluding themselves from the provisions of the TPA. The Commonwealth should look to amend the TPA so that:
    a) the States cannot unilaterally create jurisdictions removed from the TPA.
    b) the process of considering dispensation from the TPA requires a public inquiry process subject to wide transparency;
    c) all dispensation from the TPA should have clear sunset clauses;
    d) where a dispensation has expired under a sunset clause, that proposals to reintroduce the dispensation be subject to a widely transparent public inquiry process.

    For the purposes of clarity, the TPA should be amended to make it clear that independent contractors are subject to the Act and not excluded under the 'employment exclusion' provisions of the TPA.

    9. Should the Federal Magistrates Court be given jurisdiction to review contracts?
    Possibly Yes. However, more information about the current and possible functions of the Federal Magistrates Court is sought before a firm response can be provided.

    9.1) Given that (a) independent contractor issues should be removed from all industrial relations jurisdictions and (b) there is a recent trend for the States to create industrial relations-style provisions by stealth under their commercial laws, independent contractors need a commercial, common-law jurisdiction for consideration of their contracts. In this respect, the Federal Magistrates Court as a jurisdiction has conceptual interest.

    9.2) As discussed under (8.5) above, a small-claims jurisdiction is needed for independent contractors. If this could be created through the Federal Magistrates Court, this would also be of conceptual interest.

    10. Should the proposed Act seek to override State 'deeming provisions', which draw independent contractors into the net of workplace relations regulation, as far as constitutionally possible?
    Yes---on the general grounds canvassed above.

    11. Should a civil penalty provision be introduced in the WR Act applying to hirers who deliberately attempt to avoid employer responsibilities by seeking to establish a false independent contracting arrangement?
    Further information is required.

    Any entity that is an 'employer' should not be able to avoid its responsibilities by seeking to establish false independent contracting arrangements. The Independent Contractors Act should seek to assist in this respect by enabling reliable and comparatively quick assessment of status to be made. Education of the community about common-law tests and status will also assist to prevent shams. Penalties for 'deliberately' attempting to avoid employer responsibilities could be considered. This would, however, be an issue that should be settled entirely with a focus on the employer--employee relationship. ICA concerns itself with independent contractor and contract integrity issues, not employment as such.

    12. Should the labour hire industry be regulated to ensure high standards are met by all players?

    12.1) The labour hire industry is already heavily regulated through the full range of regulation applying to parties engaged in work. Labour hire is already subject to regulation covering workers' compensation, taxation, OHS, equal opportunity and anti-discrimination, commercial, trade practices and company law. Where these laws may be considered deficient, they should be improved on a case-by-case basis. Where these laws are being breached, they should be enforced.

    12.2) Labour hire involving employees is already subject to workplace relations law, and labour hire involving independent contractors should be subject to the new Independent Contractors Act and other commercial law.

    12.3) There is no justification for labour hire-specific regulation. On the contrary, labour hire-specific regulation could be used to create artificial barriers to entry to the sector, which would damage competition in the sector.

    13. The WR Act should be amended to provide that awards and agreements cannot contain clauses which restrict engaging labour hire workers or imposing conditions or limitations on their engagement.

    14. Should the WR Act be amended to include in the definition of 'employer' a labour hire agency that arranges for an employee (who is a party to a contract of service with the agency) to do work for someone else even though the employee is working for the other person under a labour hire arrangement?
    Yes. This is important for the maintenance of contract integrity.

    Such provisions would greatly and appropriately clarify any confusion created by attempts to impose the idea of 'joint employers'. The notion that two parties can be the employer of an employee entertains the idea that an employer--employee contract can exist where no contract exists. This is a legal fiction and should be stopped as it damages contract integrity.

    15. Should 'Odco' arrangements be statutorily recognised in the Independent Contractors Act?

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