Bills Digest no. 20 2006–07
Workplace Relations Legislation Amendment (Independent
Contractors) Bill 2006
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details
Passage History
Workplace Relations
Legislation Amendment (Independent Contractors) Bill
2006
Date introduced: 22 June
2006
House: House of Representatives
Portfolio: Employment and Workplace Relations
Commencement: The formal provisions commence on
Royal Assent. Schedule 1, dealing with sham arrangements commences
immediately after Schedule 2 which commences at the same time as
the proposed Independent Contractors Act 2006.
The proposed independent contractors legislation
is made up of two Bills: the Independent Contractors Bill 2006 (the
Principal Bill) and the Workplace Relations Legislation Amendment
(Independent Contractors) Bill 2006 (the Consequential Bill).
The purpose of the Consequential Bill is to:
- create in the Workplace Relations Act 1996 (WR Act)
new offences to discourage and prevent sham independent contractor
arrangements
- make consequential amendments relating to textile, clothing and
footwear (TCF) outworkers, and
- provide consequential amendments relating to unfair contracts
in the WR Act and Building and Construction Industry
Improvement Act 2005 (BCII Act). These amendments are
consequential upon the commencement of the proposed Independent
Contractors Act 2006.
Background
A detailed
Background is provided in the accompanying Bills
Digest on the Independent Contractors Bill
2006.(1)
The explanatory material accompanying the Bills
states that a sham arrangement in the context of employment is:
an arrangement through which an employer seeks to
cloak a work relationship to falsely appear as an independent
contracting arrangement in order to avoid responsibility for legal
entitlements due to employees.(2)
It further states:
Employees in disguised employment relationships
should have appropriate remedies available to them as they are not,
in reality, independent contractors.(3)
The Minister for Employment and Workplace
Relations in his Second Reading Speech states that the independent
contractors legislation includes penalties for misrepresenting an
employment relationship as an independent contracting relationship
and for dismissing an employee with the sole or dominant purpose of
re-engaging them as an independent contractor. The purpose being
that:
These penalties will send a clear message to
employers that this sort of unscrupulous behaviour will not be
tolerated.(4)
The Consequential Bill amends the Workplace
Relations Act 1996 (WR Act) by introducing various
prohibitions on sham arrangements. The prohibitions include:
- misrepresenting an employment relationship as an independent
contracting arrangement or attempting to do so (new section
900)
- misrepresenting a proposed or future employment relationship as
an independent contracting arrangement or attempting to do so
(new section 901)
A person does not contravene these sections if
the person proves that when making the representation or statement,
he or she:
- believed that the contract being entered into, would have been
an independent contracting arrangement rather than an employment
contract, and
- could not have been reasonably expected to know that the
contract was an employment contract rather than an independent
contracting arrangement (new subsections 900(2) and
901(2)).
The onus of proof under these two provisions has
been reversed it usually falls upon the person making the complaint
to prove the breaches. However with these provisions, the person
making the false representation is required to prove a defence on
the balance of probabilities in order to escape liability.
The Bill also prohibits:
- dismissing or threatening to dismiss an employee with the
sole or dominant purpose of re-engaging them as an
independent contractor (new section 902).
Employers will bear the onus of establishing that the sole or
dominant purpose of dismissing an employee was not to re-hire
them as an independent contractor
- making false representations to an employee to persuade or
influence an employee to become an independent contractor when
knowing the representation to be false (new section
903)
These prohibitions attracts civil penalties of 60
penalty units ($6 600) for individuals and 300 penalty units ($33
000) for corporations (new section 904).
Office of Workplace Services inspectors will be
empowered to police these provisions and enforce any breaches. The
employee concerned, or a relevant trade union (with written
authorisation from the employee) will also be able to take action
(new subsection 904(3)).
Breaches of the legislation will be dealt with by
the Federal Court of Australia or the Federal Magistrates Court
(new section 905).
As the accompanying Digest notes, both the
Consequential Bill and the Principal Bill have been referred to the
Senate Employment, Workplace Relations and Education References and
Legislation Committee (Senate Committee Inquiry) for inquiry and
report. A number of submissions to the Inquiry consider these sham
penalty provisions in some detail. For the purposes of this Digest,
only two submissions are chosen to reflect the variety of
views.
The New South Wales Government in its submission
to the Senate Committee Inquiry states that the barriers to using
these provisions are considerable and therefore are likely to be of
very limited use, if any, to workers seeking redress from
unscrupulous employers.(5) More specific criticisms in
the submission include:
- the requirement that re-engagement as an independent contractor
be the sole or dominant reason for dismissal may create a
serious barrier for applications. For example restructuring the
enterprise or financial difficulties may be reasons which prompt a
desire to cut labour costs, and the change of status may be a
subordinate result of these larger considerations
- applications for relief must be made to the Federal Court or
the Federal Magistrates Court both costly jurisdictions and
therefore unlikely to be available to the majority of employees who
these Bills should be protecting
- an applicant would be first required to demonstrate that the
contracting arrangement was in fact an employment arrangement,
presumably by means of applying the common law
test.(6)
The New South Wales Government s submission notes
that in order to mount a successful application, the worker would
have to:
- convince the court that the contract was, or was intended to
be, in fact a contract of service rather than a contract for
services, and
- rebut any claims by the contractee that they either believed
that the contract was a contract for services and that they could
not have been reasonably been expected to know that the contract
was a contract of employment.
By way of contrast, the Australian Chamber of
Commerce and Industry (ACCI) in its submission to the Senate
Committee Inquiry has serious concerns with the breadth of the
proposed offences. ACCI argues that there is no need for these new
offences because there is no widespread evidence of sham
arrangements, and to the extent that they occur, there is already
sufficient law dealing with sanctions against sham contracts. Some
of the specific difficulties ACCI point to are:
- there are judicial differences and interpretive difficulties
when evaluating contractor status
- it is wrong for a business to be unable, even with the best
will and intention, to create contract arrangements free from the
risk of penalty. Perceptions of risk in attempting to enter into
contracting, and the very real prospect of getting it wrong and
incurring a penalty (above the existing penalty of back pay etc.)
could reduce the capacity and appetite of individuals to enter into
contracting
- the offence relating to misrepresentation of an employment
relationship is a strict liability offence and the defences carry a
reverse onus of proof, and
- the offence relating to dismissal of employees and making them
contractors is drafted too broadly and is the most objectionable of
the three offence provisions.(7)
Schedule 2 proposes amendments to the WR Act and
the BCII Bill consequential upon the commencement of the
Independent Contractors Act. The most significant amendments
are:
- item 3 which repeals Part 22 of
the WR Act which refers to outworkers in Victoria. The provisions
relating to TCF outworkers will instead be incorporated in the
proposed Principal Act
- item 7 which repeals section
832 to 834 of the WR Act, the provisions currently dealing with
review of unfair contracts. Similar provisions in the proposed
Principal Act will replace these sections
Endnotes
- Mary Anne Neilsen, Independent Contractors Bill 2006, Bills
Digest No. 19, 2006 07, Parliamentary
Library, Canberra, 4 September 2006. http://www.aph.gov.au/library/pubs/bd/2006-07/07bd019.htm
- Explanatory Memorandum to the Independent Contractors
Bill 2006, pp. 9 10.
- ibid.
- Minister for Employment and Workplace Relations, Independent
Contractors Bill 2006, House of Representatives, Hansard,
22 June 2006, p. 5.
- NSW Government submission to the Senate Committee Inquiry,
paragraph 207.
- This is discussed in the Digest to the Principal Bill.
- ACCI Submission to the Senate Committee Inquiry, pp. 33
39.
Mary Anne Neilsen
4 September 2006
Bills Digest Service
Parliamentary Library
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ISSN 1328-8091
© Commonwealth of Australia 2006
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