As the use of labour hire workers grows, companies who eye the advantages of the system should also be aware of the very real legal and industrial problems that can arise.
This caution was sounded by Sean Selleck, a senior associate at Mallesons Stephen Jaques, Melbourne, in a paper delivered to the IES Conference on New Employment Law in Melbourne last week.
About 27% of Victorian workplaces are using labour hire today, with 97% of labour hire employees being engaged as casuals. Labour hire generates $10 billion in national sales annually.
Mr Selleck said: “Labour hire is favoured by companies because it allows them to adjust their staffing levels in response to short-term fluctuations in the demand for their goods or services. It helps them match the skills of workers to specific tasks and companies perceive that labour hire will relieve them of some of the risks of direct employment, such as unfair dismissal actions.”
Unions, on the other hand, see labour hire as a device to reduce worker rights and entitlements and to de-unionise workplaces.
Labour hire agencies offer a broad variety of services, ranging from permanent recruitment to temporary labour provided on a short-term basis.
In a variation known as the Odco system, some labour hire companies engage temporary workers (temps) as independent contractors rather than employees. This may attract major antagonisms when used with the deliberate aim of undercutting site rates.
One of the major legal problems is deciding who is the effective employer. The traditional test for this is the control test; this seeks to determine whether a given contract is one of “service” (employment) or “for services” (independent contracting). In a true labour hire situation there is no contractual relationship between a company (host) and a temp. However, in one case the Industrial Relations Commission found that the company (host) was the effective employer because it had sole control over the temp.
Labour hire can lead to legal problems in at least six areas.
Unfair dismissals. To avoid complications, companies (hosts) should never recruit their own temps, they should always treat temps as temps, and they should not offer temps permanent positions.
Occupational health and safety. The companies (hosts) have the primary responsibility for ensuring health and safety in the workplace, but this does not absolve the labour hire company from responsibility, even if the temps are independent contractors. This difficulty becomes immense when the labour hire company is hiring out thousands of workers to different work sites.
Equal opportunity and anti-discrimination laws. Companies (hosts) using temps are subject to Section 15 of the Equal Opportunity Act 1995 that prohibits a principal from discriminating against a contract worker. They are also bound by the sexual harassment and victimisation provisions of the Equal Opportunity Act 1995.
Transmission of business. When companies outsource a particular function, they terminate in-house employees and sometimes use a labour hire company to provide replacements (some might be former employees of the company). This is a complex legal matter, but labour hire companies maintain there is no transmission of business in such circumstances
“In my opinion, this is a correct analysis, and it is supported by a High Court decision,” said Mr Selleck.
Freedom of association. If the main reason for outsourcing is to save costs by employing staff on less favourable terms, it is possible that the freedom of association provisions in the Workplace Relations Act 1996 will be infringed. However, the companies (hosts) are on safer ground if they are in serious (terminal) financial difficulties or if their motives are to achieve work efficiencies eg. through the use of specialised equipment or systems.
Workcover. Labour hire companies are required to take out workers compensation insurance for temps and to deal with claims. However, they are entitled to be indemnified if an injury to a temp is caused through the negligence of the company (host).
Payroll tax. Generally speaking, the labour hire company is responsible for paying payroll tax. However, the Victorian Payroll Tax Act 1971 has special provisions that can override the common law and place the responsibility on the company (host).
Some labour hire companies have established connections with unions. They might negotiate certified agreements with unions and employ high proportions of union members. Other labour hire companies might have no union relationships and zero union memberships. Many certified agreements include restrictions or prohibitions on the use of contractors or temps. Companies (hosts) who are governed by such agreements need to be aware that they can be at risk of penalties or industrial disputation if they engage contractors or temps.