Australian Council of Trade Unions
Submission to Labour Hire Task Force
New South Wales Department of Industrial Relations
September 2000
Introduction
The ACTU welcomes the New South Wales Government’s inquiry into the labour hire industry. The dramatic growth of the labour hire industry has focused attention on the impact of this alternative form of employment. It is the view of the ACTU that employment via a labour hire agency is more precarious, hazardous and less rewarding, financially and otherwise, than traditional forms of employment.
The ACTU recognises that in certain circumstances an employer’s utilisation of labour through a labour hire firm can increase flexibility and reduce employment costs. It is our submission that in the absence of appropriate regulation and enforcement, the employer’s decrease in costs is borne by the employee and the community through diminished employment security, terms and conditions of employment, reduced safety and shifting the cost of training to the employee and the state.
Labour hire firms can provide an efficient means through which genuine short term or temporary labour needs can be addressed. The union movement’s concerns regarding employment via labour hire firms have grown with the growth and change in nature of the industry.
Employment through a labour hire firm is no longer almost exclusively temporary or short term. Employment via labour hire firms can be both long and short term and extends to all industries within the public and private sectors. Over ten per cent of those employed by labour hire firms have been placed with the one client employer for more than two years. [1]
Payment for work performed by employees of labour hire firms is generally less than that provided to directly employed workers and the employment less frequent and secure.
The growth of employment via labour hire firms has seen the development of dual employment relationships within workplaces. Individual workers, and in some cases, whole departments no longer have a direct employment relationship with the client employer yet they perform the same functions as fellow employees and often receive less remuneration and security. Employees of labour hire firms are increasingly second class workers.
Definition of Labour Hire
A labour hire arrangement is one whereby a labour hire company or agency provides individual workers to a client or host with the labour hire company being ultimately responsible for the worker’s remuneration. These workers may be employed directly by the labour hire company, or independent or dependent contractors.
In certain circumstances it has been found that employees have been employed by both the labour hire company and their client. [2]
Workers may be provided on a casual, part time, full time or on-going basis as either temporary or relief workers, to augment staff during periods of peak or seasonal demand, as specialist staff or on a more permanent basis following the outsourcing of part of a business.
Extent of Labour Hire Arrangements
It is estimated that over a quarter of Australian work places utilise labour hire firms and that over 1000 labour hire firms operate throughout the country; forty percent of which are based in NSW alone. There has been an exponential increase in the role of labour hire companies in all sectors of the economy.
Specialist labour hire companies operate in a number of industries, their growth concurrent with out-sourcing, organisational/industry restructuring and technological change. The later, being one of the driving forces behind the growth in the use of contract labour of recent times.
As Table 1 shows labour hire employees are more likely to be employed on a part time basis than employees taken as a whole 36.2 per cent compared to 28.9 per cent and have significantly greater variance in monthly variation of wages.
Significantly, labour hire employees are three times less likely to have paid leave than the rest of the workforce 78.4 per cent without paid leave compared to 25 per cent.
Although the bulk of labour hire employees are employed on a full time (not ongoing) basis, it is suggested, in common with the workforce at large, that increasing numbers are being employed on a casual or part time basis.
The increase in the use of part time or casual employment has provided a boost to numbers of staff employed by labour hire companies. Casual employment has increased from 19 per cent to 27 per cent in the ten years to 1998. [3]
Greg Murtough and Matthew Waite of the Productivity Commission suggest in their paper The Growth of Non-Traditional Employment: Are Jobs Becoming More Precarious?[4], question the ABS definition of casual employment and argue that the inclusion of some owner managers, (who are included as they do not provide themselves paid leave), over states the level of casuals within the ABS figures. The ACTU believes that the use of paid leave as a measure of whether an employee is a casual is flawed as many casuals receive paid leave.
Whatever the actual figures, they are increasing rapidly.
The 1998 ABS Forms of Employment Survey estimated that in 1998 84,300 workers were employed by labour hire firms across Australia, 30,000 in New South Wales. Given recent trends this figure will have increased in the last two years.
The ACTU is of the view that any survey or census which does not include persons who consider themselves employed by both labour hire firms and employment agencies is bound to seriously underestimate the extend of employment in the labour hire industry.
The 1995 Australian Workplace Industrial Relations Survey (AWIRS) found that:
“After combining the numbers of contractors, agency workers and outworkers to find the total number of these workers associated with each workplace, we found their incidence as a proportion of employees had increased in relative terms by nearly 40 per cent – up from 4.7 per cent in 1990 to 6.5 per cent in 1995.”[5]
The report also found that the incidence of contracting out had increased and was more prevalent in the public sector.
Outsourcing and labour hire
The trend towards outsourcing whole or parts of an organisation’s workforce has provided a welcomed injection to the labour hire industry.
There is an increasing tendency, particularly within government departments and agencies, for so called non core or specialist functions previously provided by directly employed staff to be outsourced to external providers. Labour hire organisations are increasingly providing this labour.
Within the Federal Government’s Department of Finance and Administration is the Office of Asset Sales and IT Outsourcing (OASITO). OASITO’s purpose, amongst other things, is “to implement the sale or privatisation of Australian Government owned businesses and to arrange for the outsourcing of provision of information technology infrastructure for Australian Government agencies”.
To this end OASITO is outsourcing the CSIRO’s IT functions in a series of groups of IT tenders which have been termed clusters. The CSIRO staff association claims such moves will result in increased costs and a significant breakdown in research capacity within the CSIRO. The CSIRO staff association estimates that up to 10 per cent of the CSIRO’s staff will be transferred out of direct employment.
The Computer Services Corporation (CSC), is the successful tenderer for the provision of IT services to a wide range of federal government departments and services, tendered as ‘Cluster 3’. CSC was recently penalised $2.4 million following their failure to meet the level of service specified within their contracts in the two years they have taken over the supply of IT services.
These contracts are primarily for the provision of labour. Many of the employees providing these specialist services were former employees of the client government department or agency.
John Benson of the Department of Management, University of Sydney in 1999 undertook a case study of four manufacturing companies that outsourced their routine maintenance activities to Australia’s largest labour hire firm Skilled Engineering.[6] The study found that outsourcing was primarily seen as a means of reducing costs by reducing the numbers of staff and overtime worked and allowing for greater flexibility in the allocation of work.
The recent ruling by Madgwick J that the Greater Dandenong City Council had breached s 298K(1) of the Workplace Relations Act 1996 as the council’s motivation in outsourcing its home and community care services was the council’s dissatisfaction with the level of its employee entitlements. [7]
The Federal Court’s decision in ASU and Dandenong Council case and recent findings by the Auditor-General that the Federal Government’s outsourcing of their IT functions have cost three times more than budgeted, whilst the savings in three of the four contracts provided to date have been non existent or minimal, will no doubt add to the waning enthusiasm for outsourcing.
Training issues
Corporations and government alike have opted to outsource IT functions in part to allow ready access to workers with updated and relevant skills as their needs vary.
As major corporations outsource their IT needs to specialist service companies and labour hire organisations they cease to provide internal training. In the absence of specialist training from labour hire firms, the burden of provision of this training subsequently falls on the State or the individuals or both.
In their paper Public sector outsourcing: implications for training and skills,[8] George Lefferty and Amanda Roan of the University of Queensland conclude that “The skills provided by labour hire companies tend to be generic, rather than industry-specific. Labour hire employees lack organizational memory and the capacities to work effectively within a distinctive environment, such as the public service or universities. Significant inequities between public sector employees and labour hire workers in terms of pay, conditions, and access to training have also emerged. In this respect the “employee” status has become a sign of relative privilege.”
Access to training and skills development are directly influenced by an employee’s labour market position. Labour hire employees are more likely to be women part-time and casual. Research on the delivery of training to casual and part-time employees has shown reduced access to training and skills development and skills based career paths. [9]
Women and labour hire companies
Fifty four per cent of persons employed by labour hire firms are women the majority being employed in advanced clerical positions such as secretaries and personal assistants employed in business and property services, finance and insurance. [10]
Equal opportunity and affirmative action requirements in Australia apply only to larger employers, many labour hire companies are not subject to these requirements whilst the host client would often would be, particularly if the host was a public sector enterprise.
Women are over represented amongst Labour Hire employees and dominate the lower paid and less secure positions within the industry.
The ACTU is concerned that many women as long term casuals in the labour hire industry have been denied access to accepted community standards such as long service leave, maternity - parental leave.
Why are Labour Hire Workers used?
Companies and government agencies alike are increasingly viewing the replacement of direct labour with indirect labour as a panacea for many perceived problems or costs associated with direct employment. Evidence suggests that this is not the case or alternatively, the ‘problem’ or costs are passed on to another party or the employees directly.
Cost Savings
All things being equal with the exception of utilisation of short term replacement staff and skills, the use of staff via a labour hire company should be more expensive than direct employment as the labour hire firm charges a fee of between 8%-15% to its client. Where the use of labour hire employees are more cost efficient, it is due to the lesser conditions and security provided to employees of labour hire firms.
The cost of labour may be reduced through the use of labour hire employees by the following means:
§ Failure to pay prevailing award or agreement rates.
§ Standing down employees without pay between jobs during low workload periods.
§ Payment of cash for overtime.
§ Treating employees as subcontractors; and
§ Continuing to treat and pay employees as casuals.
§ Transfer of training costs from employer to employee and the community.
A substantial saving is also achieved through the use of labour hire employees is in the area of on-costs such as Workers’ compensation premiums, leave, training, pay roll tax, administration termination costs.
Flexibility – Just in time labour
Labour hire employees are generally the first to be terminated in times of economic downturn, are more likely to have their hours of work varied and are in a weaker negotiating position with both the host company and the labour hire firm.
Flexibility should not be a one way street. The ACTU seeks to ensure that flexible working arrangements can be provided without loss of income and conditions of employment; jeopardising workers’ ability to balance work and family responsibilities and causing increased health and safety hazards and undue stress.
Industrial Strategy
The strategic use of labour hire employees has been used by employers to reduce union presence in the workplace or to introduce change outside of the established processes of consultation and negotiation.
The replacement of permanent employees with labour hire employees is often seen as a means through which a more insecure, compliant and more affordable workforce can be achieved or indeed to replace the existing workforce.
The right to be protected from unfair or unlawful termination is not automatically provided to labour hire employees. The decision in Kangan-Batman TAFE [11] highlights this concern. In this case the teacher was found to be an independent contractor.
In other cases it may be found that workers have been an employee of a labour hire firm, however there may have been no ongoing expectation of employment given the nature of the employment relationship and therefore either no jurisdiction for the court or tribunal to hear the matter or there is jurisdiction however no remedy exists as there is no ongoing expectation of employment.
The ACTU is concerned that without appropriate safeguards labour hire firms can be used as a strategic industrial tool to undermine workers terms and conditions and security of employment. Whilst short term flexibility’s and cost savings can be achieved, they can only be achieved via a commensurate loss to the employee and the community at large.
As demonstrated by Patrick Stevedores, labour hire firms have also been used strategically to remove or reduce an employer’s liability to pay employee entitlements on termination.
It is not in the long term interests of business or the general community for increasing numbers of employees to be in insecure and low paid employment.