There's lots happening for new dispute resolution services for small business people. The Small Business Commissioner (SBC) model is being rolled out across Australia. Explanation of developments.
Submission to South Australian draft Industrial Law Reform (Fair Work) Bill 2004 4 February 2004
Independent Contractors of Australia (ICA) is pleased to have the opportunity to make comments on the South Australian draft Industrial Law Reform Bill 2004. ICA is further pleased that the Bill is only a draft and that a period of genuine consultation is being initiated.
As it currently stands, the draft Bill:
Breaks fundamental principles of justice, fairness and equity currently enjoyed by South Australians through common-law processes relating to integrity of contract, employment and independent contractors.
Directly assaults the rights of independent contractors to be independent contractors.
Attacks the certainty of commercial contract and would thereby damage economic activity in South Australia.
If implemented, the draft Bill would have serious detrimental impacts on several industries including (but not limited to):
Housing construction and renovation
Information technology
Home based micro-business sector
Accounting and legal professions
Transport
Government outsourcing
Wine and grape industries
Tourism and hospitality
Farming
Franchising
The draft Bill:
Is considerably more complex than the Queensland industrial relations employee 'deeming' provisions, which have been declared unworkable by the President of the Queensland Industrial Relations Commission.
Picks up on, but fails to resolve, the complications universally identified in the NSW industrial relations unfair contracts provisions.
Ignores key International Labour Organisation (ILO) principles concerning the rights of all workers‹including employees and independent contractors‹and the right to conduct work under commercial contracts. ICA recommends that the draft Bill be reviewed in light of the ILO 2003 Conclusion on 'The Scope of the Employment Relationship'.
This submission details and comments of these specific concerns and provides information on the ILO principles concerning employees and independent contractors.
Independent Contractors of Australia:
Background
ICA is the first (and probably only) organisation in Australia exclusively dedicated to the interests and rights of independent contractors.
ICA was formed in July 2001 and incorporated as a non-profit organisation under the South Australian Associations Incorporation Act. ICA has three principal aims:
1. To conduct education campaigns to assist independent contractors and the community at large to understand the legitimate status of independent contractors and the important issues relating to them.
2. To act as a network for industries structured around or dependent on independent contractors.
3. To lobby for the rights of independent contractors.
ICA operates through its Website at www.contractworld.com.au.
ICA is truly a 'virtual' organization. Through its Website:
The public can access significant quantities of information about independent contracting, including submissions made by ICA to government reviews.
People can subscribe ($50 per year) and access the "subscribers only" section of the site, where core legal, tax and other information is stored.
Subscribers can engage in discussion on independent contractor issues and have policy input.
Subscribers and interested registered persons can receive regular e-mail alerts on independent contractor issues.
The ICA committee is drawn from across Australia, including South Australia, with representatives from a range of industries including farming, IT, housing/construction, transport, labour hire and others.
ICA came into existence in response to the needs of the 28 per cent of the private-sector workforce who work but are not employed. ICA is dedicated to exploring the issues and interests of this significant, growing, but largely unrepresented sector of the working population.
In 2002, ICA made a submission to the South Australian review of workers' compensation and OHS. The submission, along with many other ICA submissions, is available here as a PDF.
Note on this submission
This submission does not provide all details or cover all clauses of concern in the draft Bill. Additional details can be supplied where required.
Comment on specific issues relating to clauses in the draft Bill
[Italics quotes relevant clauses from the draft Bill located at www.eric.sa.gov.au/show_page.jsp?id=2552]
Overview
The Bill is complex. It breaks from traditional common-law approaches to key definitions used in industrial relations legislation. Consequently, words that have commonly understood meanings take on different meanings. This redefining of words creates high level uncertainty in understanding the Bill and its potential consequences. The comments ICA makes are necessarily surrounded by this very uncertainty.
Clause 6 - (5) Section 4(1), definition of contract of employment - delete the definition and substitute: contractincludes a consensual arrangement (although not enforceable at common law as a contract.) contract of employment - see section 5 contract worker means a person who is engaged to carry out work under a contract.
All industrial relations (and commercial) regulation operates under legislation which, by definition, ensures that regulation only applies to persons who are in a legal contract. Legal contracts underpin both employment and commercial activity. But this seemingly simple clause 6(5) breaks all principles of contract law established through hundreds of years of common law development. Those principles protect anyone engaged in commercial or employment activity from exploitation, fraud, misrepresentation and uncertainty.
By definition, the clause:
Destroys common-law contract principles as the basis for interpretation under the Act.
Causes commercial 'arrangements' between corporations to be defined as "employment."
The explanatory information accompanying the Bill claims that the Bill enables deeming of non-employment in certain circumstances to be employment. In fact, by definition, the Bill arguably turns any contract or non-contract (whatever that may mean) between any entity in South Australia into a 'employment'-regulated arrangement.
Explanation
Under common law, a contract cannot exist unless there is:
Genuine intention to create a legal relationship
Clear terms
Offer and acceptance
Consideration (that is, payment of some kind)
Genuine consent by all parties.
These five key requirements provide protection to all persons and ensure that a contract is bona fide. They are locked in as key protections. Neither an employment contract nor a commercial contract can exist unless there is clear proof of a genuine contract existing under common law. By dumping common-law requirements for 'contract', the Bill opens up a whole new area of law that is both untested and uncertain. The Bill is legislative extremism of the highest order.
The proposed change to the critical definition of 'contract' would apply throughout the entire Act, thus changing every nuance of the Act with undetermined ramifications. Wherever the word "contract" appears, it would need to be deleted and replaced with its new meaning of "arrangement of an unknown non-common law nature". No-one operating in South Australia could be certain as to whether they were in a bona fide contract or not.
Destroys commercial contracts:
Under law, a "person" is defined as either (1) an individual or (2) a corporation or (3) a trust.
When the word "person" is combined with the new meaning of "contract" a radically new meaning of "contract worker" becomes apparent and should be read as follows:
Contract worker means an individual, corporation or trust who is engaged to carry out work under a consensual arrangement (although not enforceable at common law as a contract).
This means that when any corporation, trust or individual (contract worker) engages in any work with any other corporation, trust or individual (contract worker) in South Australia, the two parties are by definition engaged in a "contract of employment" for the purposes of the Act. All work becomes work between contract workers for the purposes of the Act. Consequently all commercial activity in South Australia becomes classified as employment activity subject to the pricing and regulatory control of the industrial relations act.
The ramifications are wide. Commercial contracts appear to be destroyed. Any activity appears to become employment activity. The implications are that the Bill turns the South Australian industrial relations act into a super regulator of all and any commercial and other activity.
The consequences are unknown, unpredictable and unexplained, but inevitably the Bill brings the industrial relations act into conflict with State and Federal commercial regulations. For example, the word "work" is undefined in the Bill. So it is unknown what constitutes "work" within the meaning of "arrangements" that may or may not be bona fide contracts. Would a financial transaction or part thereof be "work" subject to potential control under these new definitions?
Outlaws independent contracting/self-employment
By defining "employment" as covering a "worker" "engaged to carry out work", the clause automatically turns every independent contractor in South Australia into an employee. No deeming is required. No (customary) judicial investigation is required. Choice of work engagement arrangements and work lifestyle is eliminated in South Australia. All people are forced to be employees. Justice is destroyed. This would impact on every industry in South Australia that uses independent contractors. It would deny every person in South Australia who is, or wants to be, an independent contractor and self-employed the right to be an independent contractor and self-employed.
Destroys Justice
The clause creates real possibilities that persons may be subject to an allegation that they are in an 'arrangement' when they had no intention or desire to be in an 'arrangement' and may find themselves with obligations and liabilities imposed on them by 'arrangements' they did not know they had, or intended to have. This threat to justice is not diminished by the use of the word "consensual." The word "consensual" within the Bill is undefined, uncertain and must lead to considerable and expensive legal testing.
Summary of clause 6(5)
The consequence of clause 6(5) is that it creates high levels of economic risk for any person conducting business or other activity in South Australia.
Clause 5 - (3) Objects of the Act (d) to meet the needs of emerging labour markets and work patterns while advancing existing community standards and ...
As a consequence of the extreme redefinitions under clause 6(5) above, the objects of the Act (d) would be thwarted. In fact, by outlawing emerging labour markets, the Bill would prevent nascent labour markets and work patterns from emerging in South Australia. Emerging labour markets and work patterns principally involve people not wanting to work as employees. This is evidenced by the fact that 28 per cent of the private-sector workforce earn a living by not being employees (Australian Bureau of Statistics). This would mean that people interested in working in South Australia under new work and lifestyle patterns would be automatically turned into employees, denying them their work-pattern choice. This would damage existing and potential creative economic activity in South Australia.
Clause 6 (10) (11) (12) definition of industrial matter
Given the extreme re-definitions under 6(5) in which "contract", "employment" and "worker" all have new, non-common law meanings, the definition of "industrial matter" under these clauses means that any transaction in the South Australian context could become an "industrial matter" for the purposes of the Act. The limitations on "industrial matter" are unknown, unpredictable and untested. A dispute between an accountant and the accountant's clients, for example, could be an "industrial matter".
7 - Substitution of section 5
- delete the section and substitute - 5- Contract of employment (1) A contract under which a person (the service provider) provides services for another in an industry is a contract of employment if- (e) the contract is one in which the service provider is a person who falls within a class of persons declared by the Full Commission to be employees
(2) The bill then provides criteria for a Full Commission consideration being (a) practical reality (b) persons more appropriately regarded.
And
(3) Sets out tests for determining "practical reality" as (a) control (b) integration into business (c) economically dependent (d) delegation (e) provision of equipment (f) other clients.
And
(4) Sets out tests for determining "more appropriately regarded" as (a) bargaining power (b) economic disadvantage (c) ethnic, cultural, linguistic or other disadvantage (d) evidence of exploitation (e) consequences of not making declaration (f) any other factor.
Comment: According to the Explanatory information, these clauses in large part utilize the indicia used by the common-law courts together with provisions in place in Queensland. But there are problems:
Within the total structure of the Bill, this clause 7(5) is made irrelevant and unnecessary by the clause 6(5) above which, by definition, makes all contracts (whether they are contracts or not) between any entities, employment contracts. In effect, 6(5) makes deeming provisions unnecessary, as all contracts and independent contracting are destroyed. But given that this clause 7(5) is in the Bill, comment is still necessary.
Queensland s275 provisions
The clause uses some of the indicia in the Queensland s275 deeming provisions. The Queensland provisions are the only industrial relations employment deeming provisions operating in Australia. NSW and Victoria considered but rejected similar clauses. The President of the Queensland Commission has twice publicly declared the provisions unworkable. (Speeches made to Australian Industrial Relations Society National Conferences Sept 2001 and March 2003)
Only three applications of the Queensland s275 provisions have been attempted. The first application against contract shearers was dismissed by the Commission, with the shearers found to be genuine independent contractors. But it cost the 300-plus shearers subject to the application $325,000 in legal fees to defend their status. A second application involving a security business resulted in a corporation being declared an employee. The third application (still ongoing after 2 years) involves many hundreds of contract transport drivers, is still in dispute over procedural matters and has not reached a substantive hearing. Each application has proven highly expensive for both the applicants and the defendants (independent contractors) and has involved long, drawn-out legal debate over the incoherent meaning of new phrases that have broken from common-law meaning similar to clause 6(5) in the SA draft Bill. Independent contractors see this attack against them as oppressive, aggressive and an affront to their independence.
Common law replication?
In completely rejecting common law under clause 6(5), clause 7(5) then attempts to reintroduce some aspects of common-law processes, which raises the question as to why the Bill is needed in the first place. Further, when reintroducing common-law processes, it does so in a selective and incomplete way.
Clause 7(5):
Only specifically instructs the Commission to apply about six of the potentially available 20 or so common-law indicia. This potentially limits the scope of the Commission's consideration. To ensure equity, the Bill should instruct the Commission to apply the full scope of common-law tests.
Introduces concepts of ethnic, cultural and linguistic disadvantage which are currently largely untested as legal concepts under common law. These are social concepts that do not have contract meaning and open up new, undefined and disputable legal indicia.
Fails to instruct the Commission to look through written 'contracts' to the true nature of the behaviour of the parties to the contract.
Fails to instruct the Commission to consider the totality of the relationship when coming to a decision.
The narrowness of clause 7(5) in reapplying limited aspects of common law creates concerns that:
(a) people who would be found in fact to be employees under common law may not be found to be employees under clause 7(5).
(b) people who would be found in fact to be independent contractors under common law would be declared employees for the purposes of the Act, but remain independent contractors for other commercial legislative and regulatory purposes (for example, tax, etc.).
Clause 7(5) will create considerable confusion and uncertainty.
Clause 7 (5D) Co-employers
Subject to this section, a person will be taken to be a co-employer of an employee or a group of employees engaged (or previously engaged) under a contract of employment with someone if....
The introduction of the legal idea of "co-employer" is a legal first in Australia (and possibly internationally) within industrial relations and other legislation. It demonstrates the radical nature of the Bill.
The concept and reality of employment has always been wedded to the factual findings first of a contract, then of employment. This clause (consistent with the rest of the Bill) dumps the legal need for a contract and allows for the arbitrary creation of "employment" between two parties even when the parties (a) did not wish for a contract to exist (b) did not agree to the existence of a contract ( c) did not know that a contract could exist.
The outcome will be that parties will find themselves with contract and employment obligations to each other created retrospectively by an entity which is not involved with, or party to, the contract. This will apply to labour hire, franchising, all contracting-out, any form of contract manufacturing and other unknown commercial arrangements. This will create high levels of uncertainty which will impact on common-law employees as well as on independent contractors, corporations, trusts and any entity conducting business in South Australia. It will diminish business activity in South Australia.
Clause 8- 12 References of questions of law from the Commission
The Court has, however no jurisdiction to review a determination of the Full Commission.
This appears to mean that rights of appeal, through the judicial process to the High Court, are to be denied to South Australians. If so, what are the constitutional implications? If not, can the appeal right implications of this clause be explained? On the surface, this appears to be highly unjust.
Part 3A Safe and fair rates for contract workers. 96- (2) The following are proscribed standards of remuneration; (b) rates of remuneration that may lead to threats to the health or safety of people at work.
This clause is odd. It represents a historic quantum shift in how industrial relations systems assess remuneration rates. The Bill seeks to regulate the rates of all contract work and will, under the definitions proposed, regulate the remuneration of carpenters, electricians, plumbers, accountants, lawyers, information technology professionals to name just a few of the self-employed independent contractors covered under the redefinitions. Given that remuneration for these independent contractors is normally that constituted by the rate they charge their clients, how will the relationship between remuneration and health and safety be identified, determined and enforced? What constitutes a "health and safety" remuneration rate? For example, will a householder engaging a contractor to fix an electrical socket become liable for the "health and safety" of the electrician through the level of remuneration? The Bill and the Explanatory Information give only a cursory and inadequate indication of how remuneration can or will be tied to health and safety. It is a concept of pay not witnessed before.
Part 3B Review of unfair contracts 97 - (1) In this Part contract means (a) a contract of employment (b) a work contract.
Given the re-definition of contract under clause 6(5), the power to review "unfair contracts" is not limited to contracts at common law, but even arrangements that are not common-law contracts. The Bill creates review powers that have a jurisdictional reach potentially intruding into any conceivable arrangement or relationship in South Australia that falls within the reach of the definition of "work" and "consensual arrangement of common or non-common law nature".
The Explanatory Information states that the clause reflects what is happening in other states. NSW is the principal State with the history of an unfair contracts regime within industrial relations legislation. Queensland only comparatively recently replicated NSW. The other States have legislative provisions within their Fair Trading Acts.
NSW has long had problems with their industrial relations-type unfair contracts provisions because they have predominantly being used by the rich and powerful in dispute with the rich and powerful. The NSW provisions have not been applied as intended‹that is, to protect the less powerful. Attempts to cap levels by a monetary ceiling have not succeeded. The NSW Act is apparently facing further review.
International Labour Organisation (ILO)
ICA understands that the intent of the draft Bill is to afford appropriate protection through labour regulation to all workers in South Australia. Further, it is accepted that the rapidly changing nature of work arrangements is presenting challenges to the post-World War 2 approaches to labour regulation. The issues facing South Australia are the same regulatory challenges faced globally and have involved extensive consideration by the peak global labour organisation, the ILO, since about 1996. The debate at the ILO on this issue has been one of the most prolonged and hard-argued of all issues in the history of the ILO. The ILO came to a significant 'Conclusion' in June of 2003 which represents the international high water mark statement on the issue. The ILO envisages adopting an "international response" on the issue based on the Conclusion. Consequently the ILO Conclusion is of profound relevance to the SA draft Bill.
The ILO has grappled with fundamental issues, namely:
What is the nature of the changes to labour markets?
Are the changes legitimate?
Should governments attempt to stop the changes?
Can governments accommodate the changes and, if so, how?
In summary the ILO Conclusion states that:
The nature of labour market changes is that significant numbers of people across the globe are choosing to work as independent contractors who are controlled and regulated through commercial contract regulation and law.
Where independent contracting/self-employment is genuine, the shift of people away from employment is legitimate. Where independent contracting/self-employment is not legitimate the shift is not legitimate.
Regulators should not attempt to stop the changes but should ensure that people are in a position to exercise genuine free choice. Governments, however, have a responsibility to ensure that appropriate mechanisms are in place to ensure that genuine free choice is exercised.
Governments should look to ensure appropriate regulation of the emerging work arrangements by utilizing regulation that respects the status of independent contractors and the self-employed.
Independent contractors/self-employed persons and commercial contracts are not within the scope of industrial relations/employment regulation. Industrial relations/employment laws should not attempt to regulate independent contractors/self-employed persons and commercial contracts.
ICA submits that the South Australian draft Bill breaches each of these key ILO principles in that the draft Bill would:
Destroy the status of independent contractors/self-employed people.
Destroy the integrity of commercial contract regulation in South Australia despite its application elsewhere, nationally and globally
Not prevent sham contract arrangements.
Force independent contractors/self-employed persons and commercial contracts into industrial relations/employee law.
ICA believes that appropriate regulation for independent contractors/self-employed people can be developed, but that this regulation is not appropriately housed within industrial relations legislation. ICA's purpose is to assist where possible in the development of appropriate regulation through commercial contract law of which much is already in place and some of which could do with review and modification.
Understanding the ILO Conclusion
The June 2003 ILO Conclusion is contained in the ILO's "Provisional Record Ninety-First Session Geneva 2003.Fifth Item on the addenda. The Scope of the Employment Relationship." The full 57-page document is available here as a PDF.
Pages 52 to 57 contain the 25 clause statements of principles which form the Conclusion.
The key ILO statements of direct relevance to the South Australian draft Bill are:
"1 ... The term employee is a legal term which refers to a person who is party to a certain kind of legal relationship which is normally called an employment relationship. The term worker is a broader term that can be applied to any worker, regardless of whether or not she or he is an employee. Employer is used to refer to the natural or legal person for whom an employee performs work or provides services within an employment relationship. The employment relationship is a notion which creates a legal link between a person, called the "employee", with another person called the "employer", to who she or he provides labor or services under certain conditions in return for remuneration.
Self employment and independent work based on commercial and civil contractual arrangements are by definition beyond the scope of the employment relationship.
"3...Changes in the structure of the labour market and in the organization of work are leading to changing patterns of work within and outside the framework of the employment relationship..."
"13...While laws and regulations should be sufficiently clear and precise leading to predictable outcomes, they should avoid creating rigidities and interfering with genuine commercial or genuine independent contracting arrangements."
Conclusion and Recommendations
Independent Contractors of Australia submits that the definitional structure of the South Australian draft Bill destroys contacts, commercial contracts and independent contracting arrangements and thus breaches these key ILO principles for labour laws and regulations.
ICA believes that the draft Bill should be amended to:
Respect and restore contract law.
Not embrace commercial contract or independent contracting/self-employment.
Retain the necessary industrial relations focus on relationships between employees and employers as defined at common law.
Ensure that common-law processes for differentiating between employee and genuine independent contractor arrangements are reinforced.
Disclaimer: This material belongs to Independent Contractors of Australia. Reproduction is available for the exclusive private use of ICA members. Any unauthorised reproduction is prohibited. None of the information in this Website constitutes legal or professional advice, but is offered as opinion only. Every individual will have specific and unique circumstances that determines their own status. Every person should seek their own professional advice. ICA, its committee and members are not responsible for the outcome of decisions or actions that a person may take as a result of anything stated in this Website.
This page copyright Independent Contractors of Australia, designed by Fergco Pty Ltd.
![[About ICA]](/images/about.jpg){kind=small}
![[Practical Help]](/images/prachelp2.jpg){kind=small}
![[IC Act]](/images/icact.jpg){kind=small}
![[Campaigns]](/images/campaigns.jpg){kind=small}
![[Discussion]](/images/discussion.jpg){kind=small}
![[Research]](/images/research.jpg){kind=small}
![[Global]](/images/global.jpg){kind=small}
![[Library]](/images/regslibrary.jpg){kind=small}
![[Contact Us]](/images/publiccontact.jpg){kind=small}
![[Home]](/images/publichome.jpg){kind=small}
![[About ICA]](/images/mem-about.jpg){kind=small}
![[Practical help]](/images/mem-prachelp2.jpg){kind=small}
![[IC Act: Australia]](/images/mem-icaact.jpg){kind=small}
![[What is an IC?]](/images/mem-whatis.jpg){kind=small}
![[Tax: Australia]](/images/mem-tax.jpg){kind=small}
![[Collective Bargaining]](/images/mem-bargaining.jpg){kind=small}
![[Collective Bargaining]](/images/mem-contracts.jpg){kind=small}
![[Members Login]](/images/mem-login.jpg){kind=small}
![[Your Account]](/images/membersaccount.jpg){kind=small}
Ken Phillips (ICA) and Peter Strong (COSBOA) debate "The Future (or Death) of Employment". Vids are 
Watching Global Economies
Virtual Business Providers
Access the ATO's new 'decision tool'
Register Your Business Name
'Business in Crisis'
'The Early Years'
'Research & Marketing'