Thinking | 26 April 2018
Labour Hire Licensing Act 2017 – integrity in the labour hire industry
In September 2017, the Queensland government passed the Labour Hire Licensing Act. Comparable legislation has been passed in South Australia (commencing 1 March 2018) and is before parliament in Victoria (yet to be passed) which is similar but not identical. The Act covers all operations within Queensland, including labour hire providers and hosts who may be based interstate or overseas but have business in Queensland.
The legislation seeks to impose a framework of licensing on the labour hire industry, primarily to protect workers from exploitation, but also to promote integrity in the industry.
Integrity has been a particular problem for labour hire in the mining and agricultural industries over the last 15 years, with a proliferation of phoenix companies seeking to exploit the shortage of workers to make a quick buck before falling foul of regulators, only to set up a new shopfront elsewhere. The legislation seeks to restore respectability and reliability to the labour hire industry through rigorous testing of financial viability and imposing strict corporate governance obligations so that only substantial operators will survive.
Interestingly, the legislation seeks to achieve this goal by placing an equally heavy responsibility on hosts to ensure that the labour hire firms which they engage are licensed, using the stick of hefty fines, and possible imprisonment, for businesses who fail to check the compliance of their labour suppliers.
Providers and Workers
A ‘Provider’ is defined as an entity which provides ‘labour hire services’, which is in turn defined as ‘a person who supplies to another person a worker to do work in the course of carrying on a business’.
A ‘Worker’ is an individual who enters into an arrangement for the provider to supply the individual to another person to do work, and the provider pays the individual for the work performed.
The legislation provides examples of a contractor supplying workers to a farmer, a group training organisation providing apprentices and trainees, or an employment agency providing temporary administrative staff to a business. Interestingly, the Queensland legislation did not repeat the examples from the South Australian legislation of arrangements which are not labour hire services, which creates some conflict between the definitions.
The definitions include principal and subcontractor labour hire companies so that each entity along the chain supplying a worker to the host will be caught by the Act.
The Act expressly excludes private employment agencies, the construction industry and persons to be ‘prescribed by Regulation’.
The definition has been deliberately drafted in a very broad, inclusive format in anticipation of efforts to structure arrangements to circumvent the legislation. However, as a consequence, the definition has expanded well outside what would be regarded as a traditional labour hire business and on its face, also covers all forms of service industries, which by their nature involve providing workers to provide services to customers. The Act relies on the exclusions in the Regulations to sharpen the focus of the definitions.
The Regulations were published on 6 April 2018. The Regulations include exclusions from the definition of ‘worker’ but has not exercised the power under the Act to exclude types of businesses from the definition of ‘provider’. Worryingly, the exclusions under the South Australian Regulations do not match the exclusions under the Queensland Act so that the same operation may be treated differently in each state.
In Queensland, the Regulations adopt a common sense approach in excluding the supply of workers in the following structures:
- Service companies – These involve an individual trading through a proprietary company to provide the individual’s specialised service to the marketplace. This arrangement is common in the transport industry with owner drivers. This exclusion does not apply if more than one person is supplied by the company;
- Employee holding companies – Corporate groups often keep their workforce in a related company, to quarantine liabilities for tax, employee entitlements and workers compensation. The holding company then “supplies” the workers back to the group at cost. The Regulations give examples of a landscaping business using a number of companies for difference aspects of the business, or a group of medical centres using staff supplied by a trust entity. However, it is ambiguous whether this exclusion would only apply to within the relationship of the group, or also to the supply of those workers by the group to the public.
The Regulations also exclude:
- High income workers who exceed the unfair dismissal threshold under the Fair Work Act
- Workers not covered by an Award or Enterprise Agreement
- An in house employee supplied by a provider to another person to do work on a temporary basis. This exclusion is ambiguous as the Regulations do not define ‘temporary’. The Regulations give the example of a lawyer working on secondment with a client or a business consultant conducting a review of a client, which are sensible exclusions. However, the Regulations also give the example of excluding an employee of a community care organisation who works at a variety of locations including clients’ homes, which on its face appears akin to traditional labour hire which would expect to be caught by the Act.
Unfortunately, the Regulations have not addressed all of the problems of the broad definitions in the Act. As presently worded, the definitions would catch all forms of service businesses whose workers provide services to clients of the business, if the worker is covered by an Award or Enterprise Agreement. On a plain reading, this would include cleaners, security guards, catering staff, mechanics, electricians, IT consultants, health care providers, accountants, engineers, and real estate agents. Many of these occupations are already regulated by other legislation which raises questions about conflicts in licensing requirements between different regimes, as well as the imposition of the additional costs if those businesses are to avoid the hefty penalties for supplying workers whilst unlicensed.
The Regulations will require further attention to be more precise in the coverage of the Act rather than invite the embarrassment of unintended consequence if non-labour hire businesses are prosecuted for breaches of the Act.
Fit and proper person
The legislation imposes an obligation on a provider to obtain a licence to provide labour hire services. The licensing authority will look at the company, the proposed nominated officer, and the directors and executive officers of the company to satisfy:
- Financial viability – This is focused on the phoenix company issue. The Regulations require proof of financial robustness, including the production of financial records and an independent accountant’s report. This includes proof of ability to pay operating costs, wages, superannuation, and tax. Applicants must also disclose any history of insolvency of not only the applicant but also their related companies, relatives and business partners;
- Safety record – The applicant must disclose the workplace health and safety and workers’ compensation history over the last 5 years, including their interstate history. The obvious concern is the health and wellbeing of the workers. However, to a large extent, onsite safety is out of the hands of the labour hire companies and is the responsibility of the hosts;
- Character – The legislation is looking at the character and qualifications of the applicant and the people running the operation (going behind the corporate veil), to examine the company’s history of compliance generally and other factors going to good corporate governance. This includes contraventions of the Fair Work Act, convictions under various safety legislation, and contraventions of anti-discrimination legislation. It is a matter of some concern that applicants are required to disclose if any anti-discrimination complaints have been made against them, even if the complaints were dismissed or did not proceed to determination. Strangely, applicants must also disclose if they have been refused membership, subject to disciplinary action or had their membership suspended or cancelled in respect of an industry or professional body for the last 5 years, which has the potential for blackballing as a tactic to nobble competitors.
The licences are renewed every 12 months and licence holders are obliged to file reports every six months to demonstrate that the provider remains in good health.
The degree of reporting is extensive, including details of non‑English speaking workers, workers on visas, and the regions and industries where the provider operates. In addition to ensuring the licence holder is meeting licensing obligations, it is foreseeable that the significant volume of data collected may be used by Federal and State agencies to cross reference against their records to check for any inconsistencies or irregularities.
The authority can impose conditions on a licence, including requiring the entity to take out specific insurance, pay a security bond to the authority to guarantee compliance and any other conditions the authority desires, subject to giving the entity 14 days’ notice.
If a licence is revoked (other than because of the sale of a business), the company is barred for 2 years from applying for a new licence. A licence can also be suspended for up to 90 days for lesser breaches.
The legislation imposes significant financial penalties (presently up to $139,439) and potential imprisonment (up to 3 years) for unlicensed labour hire. The penalties are equally for both the providers and the hosts, to act as a disincentive for hosts offloading the responsibility onto the providers.
A host will only escape liability if they prove that they checked the online register maintained by the Office of Industrial Relations (which goes live on 12 April 2018) before engaging the provider to confirm their licence status.
The penalties also apply for entering into arrangements to circumvent the licensing regime, which could result in a doubling of the penalties, depending on the efforts made to conceal the arrangements.
A host also bears a positive obligation to report an unlicensed provider to the regulatory body unless the hosts has a reasonable excuse, that is, they searched the register and found the provider listed there. A host faces a real risk that if an unlicensed provider is caught, the Office of Industrial Relations will trawl through the provider’s records to prosecute each of its clients for not reporting the unlicensed provider.
It is therefore critical that a host carry out a due diligence before entering into any labour hire arrangements, and that the online search of the register is documented in anticipation of any future investigations by the authority.
The criminal liability extends not only to the host but also to the employees of the host involved in the hiring process, including staff who recommended or signed up the unlicensed labour hire providers.
Timing and transitional period
The Queensland Act begins operation on 16 April 2018. The Regulations were not published until 6 April 2018, 10 days before the ‘go live’ date. The website, including the online register and application forms, is due to be accessible from 12 April 2018.
The Government acknowledges that it will not be possible to process applications for licensing to be ready to start from that date, particularly as the infrastructure has not been put in place including the online register.
The Act, therefore, has a transition period during which it will not be unlawful to use unlicensed labour hire. Unlike the 6 month period in the South Australian legislation, the Queensland Act has a much tighter transition period of 60 days (expiring 15 June 2018). A provider must either have a licence or filed a pending licence application by no later than 15 June 2018. After that date, the criminal provisions will take effect.
Whilst the motive is laudable, the effect of these piecemeal State by State reforms is to create complications for businesses who have to operate nationally across three separately regulated States, and three unregulated States (and the territories). It produces a multiplication of paperwork and fees for each regulated State, with duplication of most of the information sought, but also subtle differences which could trap the unwary.
Long term labour hire contracts which predate 16 April 2018 are not rendered unlawful in themselves, but their performance will become unlawful in Queensland after 15 June 2018, unless the provider obtains or at least has a pending application for a Queensland licence in the meantime. The criminal nature of the legislation means that the performance of those contracts becomes unenforceable after that date, which creates an urgent need for hosts to review all existing retainers and make timely enquiries with their providers as their intent to obtain licences in the next 60 days.
The legislation may also create problems, at least until the definitions of ‘Provider’ and ‘Worker’ are refined in further Regulations, as to which service providers are or are not covered, particularly in circumstances where the service providers who fall outside the sphere of traditional labour hire may be covered by other licensing regimes under different legislation. The duplication and possible inconsistency of licensing obligations may be ultimately too much for those providers to bear.
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