2018 has been a year of change in state-based labour hire licensing regimes. New reforms have imposed greater regulation on labour hire arrangements, with new requirements imposed on labour hire operators and those availing themselves of labour hire services. This article examines why labour hire has been a focus of regulation, overviews the recent legislative reforms in a number of states, as well as the potential for reforms in other jurisdictions and in the federal sphere. It also considers what changes organisations will need to implement to satisfy the requirements of the new licensing regimes.

Why is labour hire under the spotlight?

In recent years, a number of labour hire firms have engaged in non-compliant activities, including:

• sham contracting (where an employer wrongfully classifies an employment arrangement as a contract for services);
• phoenixing (the process of winding up a non-compliant company, and starting up a new company so as to avoid liability for past wrongdoings);
• failing to meet obligations under the National Employment Standards, including breaches of maximum working hours, leave and termination requirements; and
• breaching obligations under work health and safety and workers’ compensation legislation.

The Fair Work Ombudsman has prosecuted a number of labour hire operators in the Federal Court and Federal Circuit Court. In one case of serious non-compliant conduct by a labour hire operator, Mr G, failed to pay a worker close to three months’ wages for work as a mechanic, amounting to approximately $7,066. The worker was of Pakistani origin, working in Australia on a Bridging Visa C, and was subsequently terminated from his position.

The Fair Work Ombudsman issued Mr G with a Compliance Notice requiring him to back-pay the labour hire worker his outstanding wages. Mr G failed to comply with the Compliance Notice and also failed to comply with basic record keeping obligations under the Fair Work Act 2009 (Cth) (the “FW Act”). As a result, the Court imposed a penalty of $10,800 and referred the matter to the Commonwealth Director of Public Prosecutions in respect of additional allegations that Mr G fraudulently created invoices for the worker’s wages, when in reality, these payments were put to the purchase of Mr G’s new car.

Increased scrutiny of and concerns about labour hire arrangements have contributed to an environment where state governments have taken up the option of greater regulation of the industry, in order to minimise the potential for worker exploitation.

Where are the changes occurring?

The changes have occurred in Queensland and South Australia.

Queensland

Queensland is the most recent state to legislate in relation to labour hire, with the introduction of the Labour Hire Licensing Act 2017 (Qld) (the “Queensland legislation”) which came into operation on 16 April 2018.

The purpose of the Queensland legislation, which is accompanied by a set of regulations, is to establish a licensing scheme for labour hire operators.

Notably, the Queensland legislation:

• prohibits unlicensed labour hire services from operating in Queensland, with a maximum penalty of over $130,000 or three years’ imprisonment for individuals, and penalties of over $378,000 for corporations;
• prohibits individuals without a reasonable excuse from using the services of an unlicensed provider, subject to the same penalties as those imposed on unlicensed labour hire operators as above; and
• requires labour hire organisations, in order to successfully obtain and maintain a license, to show that they are a financially viable business, run by a “fit and proper person” (including that the person has no past convictions for relevant criminal offences and has not been involved in phoenixing), and have a history of compliance with relevant legislation, including work health and safety, tax, superannuation and anti-discrimination laws.

The Queensland legislation excludes high-income earners (using the FW Act indexed threshold), individual executives of corporate providers, in-house employees provided temporarily (such as secondment arrangements), and certain internal labour hire arrangements.

South Australia

South Australia was the first Australian state to have a labour hire licensing scheme, through the Labour Hire Licensing Act 2017 (SA) (the “South Australian Legislation”). This scheme operates similarly to the Queensland regime, including the “fit and proper person” requirement and prohibitions on both conducting and engaging in unlicensed labour hire services. The pecuniary penalties for individuals are slightly higher in this jurisdiction, with a maximum of $140,000 for individuals, and $400,000 for corporations if found to be operating without a license. An additional feature of the South Australian legislation is that it attempts to prohibit the advertising of labour hire services without a license, with a maximum penalty of $30,000. This may have a preventive effect in seeking to protect workers prior to labour hire offences occurring.

Those exempt from the application of the South Australian legislation are group training organisations “registered in South Australia on the Group Training Organisation National Register” who supply “apprentices or trainees to do work for other persons”, and those granted an exemption by the Commissioner for Consumer Affairs. The South Australian legislation and regulations are otherwise silent as to who is exempted.

Will future changes occur?

The next state that is likely to be affected by a revamped labour hire framework is Victoria. At present, labour hire legislation is currently before the Victorian upper house after the passing of the Labour Hire Licensing Bill (Vic) by the Legislative Assembly on 8 February 2018.

If this legislation is successfully passed in its current form, it will establish a Labour Hire Licensing Authority, in addition to an Office of Labour Hire Licensing Commissioner. Although many of the provisions are similar to the Queensland and South Australian legislation (including a “fit and proper person” test, the liability of people/organisations who provide and use labour hire services, and prohibitions on advertising unlicensed labour hire), and any possible exemptions are not as yet clear, given that the proposed regulations have not been published at this stage.

Additionally, numerous commentators have anticipated that Western Australia may introduce labour hire legislation in the future.

Who is affected?

The new regimes apply to both “providers” and those who “enter into arrangements” of labour hire. Generally speaking the new regimes apply to “a person … if, in the course of carrying on a business, the person supplies to another person a worker to do work”. This applies irrespective of:

• “whether or not the worker is an employee of the provider;
• whether or not a contract is entered into between the worker and the provider, or between the provider and the person to whom the worker is supplied;
• whether the worker is supplied by the provider to another person directly or indirectly through one or more agents or intermediaries; and
• whether the work done by the worker is under the control of the provider, the person to whom the worker is supplied or another person”.

The new legislation also applies to entities that “enter into arrangements” with labour hire providers. In the states which have already passed labour hire licensing legislation, engaging in such conduct can result in an identical penalty to that imposed on “providers” who breach their legislative obligation.

The new labour hire licensing schemes may affect businesses that are based outside Queensland or South Australia where the legislation has been introduced. Given the application of the new legislation to both providers and customers of labour hire, an Australian business that is not itself based in the jurisdiction but engages the services of a labour hire provider based in one of these states, may come within the scope of the new schemes.

The Prospect of Federal Regulation?

Some states have called upon the Federal Government to implement a national regulatory response to govern labour hire arrangements. Those states that have introduced legislation have noted their intention for the legislation to act as an impetus for a national scheme. The primary legislative response to date on the part of the Federal Government relating to worker exploitation, has been the introduction of the Fair Work (Protecting Vulnerable Workers) Act 2017 (Cth), which targets certain types of businesses, and increases penalties for non-compliance.

Union organisations (including the Australian Council for Trade Unions) have called for a national labour hire framework, with ACTU Secretary Sally McManus in March 2018 calling for an overhaul of the current labour hire system in Australia. However, the current government has asserted that legislating with respect to labour hire licensing regimes should remain a matter to be dealt with by the states.