Integrity, Governance and Public Sector Employment Standards

COMMUNITY AND PUBLIC SECTOR UNION SUBMISSION TO THE INQUIRY INTO THE LABOUR HIRE INDUSTRY AND INSECURE WORK

December 2015

Integrity, Governance and Public Sector Employment Standards

Community and Public Sector Union submission to the Inquiry into the Labour Hire Industry and Insecure Work

The Community and Public Sector Union makes this submission to the Inquiry into the Labour Hire Industry and Insecure Work on behalf of CPSU members employed in the Victorian Public Service and throughout many areas of the public sector.

Karen Batt

CPSU State and Federal Secretary

11 December 2015

CONTENTS

Executive Summary4

Introduction7

Issues with labour hire/insecure work across the Victorian Public Sector14

Integrity14

Transparency16

Accountability18

Governance: Potential breaches of legislation19

Sham Contracting and Misclassification19

Financial Delegations22

CPSU Case Studies23

Conclusion25

Recommendations27

References29

EXECUTIVE SUMMARY

The Community and Public Sector Union Victoria Branch (CPSU) makes the following submission to the Victorian Government’s Inquiry into Labour Hire and Insecure Work(the Inquiry) on behalf of CPSU members employed in the Victorian Public Service and throughout the public sector.

In making this submission CPSU seeks to bring to the attention of the Inquiry the extent, nature and consequence of labour hire and other forms of insecure work across the Victorian public sector, with regard to the powers and obligations of the State of Victoria as both a regulator and employer, and make recommendations to address these problems.

The Victorian Government is the largest employer in the State, employing approximately 36 000 people in the Victorian Public Service (VPS) and 256 000 people across the public sector (including health care services, schools, TAFE institutes, police and emergency services organisations, water and land management, and other bodies).[1]

In addition to this, each year the Victorian Government spends hundreds of millions of dollars on thousands of labour hire/contractors across the public sector.[2]

The Victorian community deserves to have absolute confidence that the expenditure of public monies – including through public sector employment – is subject to the highest standards of integrity, accountability, transparency and good governance.

The use of labour hire/contracting arrangements across the Victorian public sector has been subject to numerous investigations and adverse findings from the Fair Work Ombudsman, the Victorian Auditor-General’s Office and the Victorian Ombudsman.

These investigations have found that public sector employers have utilised labour hire/contracting arrangements in order to misrepresent the actual cost and number of people involved in the delivery of public services, particularly in response to the Baillieu-Napthine Coalition governments’ ‘Sustainable Government Initiative’ and ‘Labour Sustainability Cap’.

In utilising these practices, public sector employers have exposed the State of Victoria to:

  • Risks, costs and liabilities
  • Improper practices relating to management, procurement and financial delegations
  • Potential breaches of legislation, including the Fair Work Act 2009 (Cth) and the Financial Management Act 1994 (VIC)
  • Unnecessary workforce disruption, including consequential increases to workloads; and
  • Unscrupulous recruitment and labour engagement practices characterised by conflicts of interest and nepotism.

In these cases, labour hire/contracting arrangements were deliberatelyutilised in order to subvert integrity, accountability and transparency, and allow public sector employers to circumvent budgetary controls and oversight.

In the Report on issues in public sector employment, the Victorian Ombudsman found that:

‘Such examples cause significant reputational harm to the organisations at which they occur. Further harm is caused to the reputation of the wider public sector as an institution that is open and transparent in how it selects its officers and spends public money.’[3]

This is of particular concern for CPSU members, who take their duties and obligations as public servants incredibly seriously, and cannot tolerate the undermining and erosion of public sector employment standards, and the detrimental impact on the integrity of the public service.

Aside from the responsibility to act as model employer, the Victorian Government has an obligation to be accountable for its employment practices, and ensure that Victorians have confidence in the dedicated men and women entrusted with the functioning of government and the delivery public services.

In order to ensure that the capability of the Victorian public sector is rebuilt, employment standards are protected, and integrity, accountability, transparency and the highest standards of good governance remain the touchstone of public sector employment, this submission makes the following recommendations:

  1. That the Victorian Government strengthen the regulatory framework – including the option of new legislation – to restrict the use of labour hire/contracting arrangements across the Victorian public sector and protect public sector employment standards
  2. Provide the Victorian Public Sector Commissioner with the ability to receive, respond to, investigate and enforce compliance regarding issues with labour hire/contracting arrangements
  3. Grant “Follow-the-Dollar” powers to the Victorian Auditor-General’s Office to ensure the Victorian community receives value for money in all labour hire/contracting arrangements
  4. Make the power of public sector employers to engage or enter into labour hire/contracting arrangements subject to the approval of the Victorian Public Sector Commissioner
  5. For the Special Minister of State toestablish and Chair a tripartite Public Sector Employment Integrity Committee with public sector employers, public sector unions and the Victorian Public Sector Commissioner
  6. That the Special Minister of State and the Public Sector Employment Integrity Committee establish a Code of Contractual Ethics; and
  7. That the Victorian Government in consultation with public sector unions and the Victorian Public Sector Commissioner establish a series of binding Government as a Model Employer Principles.

INTRODUCTION

The Community and Public Sector Union (CPSU) is a registered organisation comprised of two divisions – the Public Sector Union and the State Public Services Federation – and represents approximately 140,000 members nationally. This submission is on behalf of the CPSU SPSF Victorian Branch, which has been representing union members in the Victorian public sector since 1885.

As the union representing workers across many areas of the Victorian public sector, CPSUis seeking to bring to the attention of the Inquiry the extent, nature and consequence of labour hire and insecure work in the Victorian public sector, having regard to the powers and obligations of the State of Victoria as a regulator and an employer.

The engagement and use of labour hire/contract staff undermines collectively negotiated terms and conditions of employment, including the payment of wages, superannuation, overtime, penalty rates, and paid leave, including sick leave, annual leave, parental leave and numerous other conditions of employment.

It also extinguishes the notion of employment security, which is an integral and long-standing principle of public service.

The use of labour hire/contractors is of particular concern for CPSU members who, as dedicated public servants, hold grave concerns for the integrity of the public sector when employment standards are eroded by this insidious practice.

These practices also needlessly expose the State of Victoria to numerous liabilities, including potential breaches of the workplace laws.

Reporting in February 2015, following an investigation of an allegation of sham contracting made by CPSU against the former Department of State Development, Business and Innovation (DSDBI), the Fair Work Ombudsman stated:

‘By disguising employment as independent contract work, employers avoid their obligation to provide employees with their correct entitlements such as minimum ordinary hour wages, overtime, penalties and other allowances. Employees may also have been denied access to leave payments, superannuation and tax exemptions.

‘Contraventions of the sham arrangements provisions of the FW Act [Fair Work Act 2009 (Cth)] involve knowing or reckless behaviour designed to result in workers being denied employment benefits and protections. As stated, sham arrangements give the employer an unfair competitive advantage. Such contraventions are treated seriously and the FWO has instituted proceedings against several enterprises for engaging in this type of behaviour.

‘Misclassification of an employment relationship can result in a business being found to have contravened the National Employment Standards [NES], minimum wage orders, a Modern Award or an Enterprise Agreement as provided for in the FW Act.’[4]

In highlighting the proliferation of labour hire/contracting arrangements across the Victorian public sector the primary concern is the alarming extent to which this practice is rampant, unchecked and uncontrolled.

Indeed, multiple investigations have found that public sector employers have deliberately engaged in these practices to circumvent government policies – particularly, budgetary controls and employment restrictions.

Reporting on the use of contract and temporary (labour hire) staff in November 2013, the Victorian Auditor-General’s Office found that:

‘In December 2011, the [Coalition] government announced the Sustainable Government Initiative aimed at delivering an efficient, responsive and sustainable public service. The initiative required the reduction of 3,600 employees across the Victorian public sector, including 2,815 full time equivalent positions from the 11 portfolio departments.

‘Reducing staff numbers increases the risk that portfolio departments may look to increase the use of contract and temporary staff in order to deliver the services for which they are funded. Such practices can give the appearance that staff numbers are being cut and savings achieved.’[5]

Significantly, in its 2015 report the Fair Work Ombudsman found the connection between the Baillieu-Napthine Coalition governments’ State Budget announcements dating back to 2011 – specifically, the Sustainable Government Initiative and the Labour Sustainability Cap – and the DSDBI’s labour procurement practices in 2013: ‘in particular, in seeking to achieve savings required by the various budget announcements, the DSDBI had commenced changing operating model characterised by non-traditional forms of labour engagement.’[6]

The findings of the Fair Work Ombudsman reinforced the findings of the Victorian Auditor-General’s Office from November 2013:

‘Contract and temporary staff [labour hire] were engaged for extended periods, suggesting that these resources were being used to fill permanent roles. This has legal and cost implications for portfolio departments, is not consistent with the government’s policy aims, and understates the size of the public sector workforce. In a time of budget constraints and downsizing of staffing, controls over the appointment and management of contract and temporary staff need to be robust.’[7]

CPSU makes the explicit point that it was fundamentally opposed to the Baillieu-Napthine Coalition government’s ‘Sustainable Government Initiative’ and ‘Labour Sustainability Cap’ policies. The point made above is to emphasise the rampant, unchecked and uncontrolled nature of these labour engagement practices, and to highlight how these practices have deliberately been used to obscure and misrepresent the total number and cost of people engaged in the delivery of public services.

These findings form a pattern, and are consistent with the findings of the Independent Inquiry into Insecure Work in Australia, chaired by former Deputy Prime Minister of Australia, The HonourableBrain Howe AO:

‘Governments have embraced the same strategies as the private sector to circumvent industrial relations legislation and cause disadvantage to workers.

‘It is important to note also that the impact of this strategy is broader than in the private sector as it affects matters concerning transparency. Part of the intent appears to disguise the total number of people engaged in delivering services and other work and to obscure information to the community. In this way, public sector employers can deal with financial pressures on staffing levels by not recruiting new ongoing employees but by engaging contractor and labour hire employees.’[8]

To allow this practice to continue is antithetic to transparency, accountability and good governance.

It must also be emphasised that these practices are not benevolent, and have far-reaching impacts on the lives and families of both labour hire/contract staff and also those affected by their engagement within the workplace.

As the Independent Inquiry into Insecure Work in Australia found:

‘Associated with that insecurity are the same disadvantages encountered by other groups of insecure workers – lack of opportunity for advancement, training and payment or promotion consistent with classification practices ostensibly part of a merit based career system, insecure income, lack of access to credit and eligibility for loan finance, and insufficient retirement income.

‘The stories we heard from workers in the public education sector truly supported the AEU’s statement that there “is a human story of unsustainable workloads and stress, of financial hardship and unsought career change, of resounding frustration and of deep distrust of management by the workforce.”’[9]

Equally, a recent report by the Australian think tank, Per Capita, found that the unchecked increase in precarious employment arrangements characterised by the transfer of risk from employers to employees presents a threat to Australian living standards.[10]

Particular to the public sector context, these labour engagement practices create both direct insecurity – reflecting the precarious nature of the employment arrangement/relationship for the labour hire/contracted worker – and also a sense of vicarious insecurity within the immediate workforce; a sense that if this practice can be allowed in one instance, the security of all employees is diminished.

This sense of vicarious insecurity is heightened when labour hire/contract staff are engaged to perform “core” functions or duties, work previously performed by VPS employees, and/or engaged for long periods of time.

Significantly, in its 2013 report into labour hire/contractor arrangements across portfolio departments, VAGO conducted a review of 35 individuals contracted across eight portfolio departments and found that:

‘The contract staff had been engaged by portfolio departments for periods ranging from one day to 15 years, with:

  • 10, or 29 per cent, engaged for less than a year
  • 15, or 43 per cent, engaged for between one and five years
  • six, or 17 per cent, engaged for between five and 10 years
  • four, or 11 per cent, engaged for more than 10 years.’[11]

Following its investigation, the Victorian Auditor-General’s Office found that: ‘It is unclear whether individuals employed as contract staff for extended periods, are legally “employees” entitled to accrue employee benefits.’[12]

CPSU members suffered through – and experienced first-hand – the ordeal that was the Baillieu-Napthine Coalition government’s ‘Sustainable Government Initiative’ and ‘Labour Sustainability Cap’. Together, these policies slashed thousands of jobs from the Victorian public sector.

CPSU members witnessed many of these positions being replaced by labour hire/contractors; people engaged through precarious employment practices, with no employment security and diminished rights and entitlements.

The result was a workforce stretched to breaking point with an entrenched sense of insecurity, which in turn had a detrimental impact on services.

The damage caused by these policies and the consequential precarious employment practices, led to a commitment from the then Leader of the Opposition, now Premier of Victoria, The Hon Daniel Andrews MP, in November 2014:

‘As the State’s largest employer, the Victorian Government should set an example.

‘Labor will seek to reduce, and where possible eliminate, the use of outsourcing of publicly funded employment and workplaces covered by government wages policy; include a secure jobs clause during EBA negotiations, committing agencies to a secure employment recruitment target and improving casual conversion arrangements.

‘If outsourcing work, Labor will ensure that public sector terms and conditions of work transmit with employees to the new employer and are maintained, with access to future wage improvements and including protections from unlawful discrimination and forced redundancy.

‘Labor will also formalise and ensure the enforceability of agreed public sector redundancy provisions.’[13]

CPSU welcomed this commitment.

The rampant use of labour hire/contracting arrangements across the Victorian public sector is of particular concern when considered in light of the recent decision of the High Court of Australia in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd in which the High Court considered whether the protections against ‘Sham contracting arrangements’ in the Fair Work Act 2009 (Cth) prohibit an employer from misrepresenting the employment relationship to an employee by declaring that the employee performs work as an independent contractor under a contract for services with a third party.

In the decision, French CJ, Kiefel, Bell, Gageler and Nettle JJ found:

‘the Full Court [of the Federal Court] construed s 357(1) to have a much more confined operation. The Full court held that, to contravene the provision, a representation by an employer to an employee must mischaracterise the contract of employment that exists between the employer and the employee “as a contract for services made between the employee and the employer”. That construction, the Full Court considered, was compelled by the text of s 357(1), read in light of its purpose as illuminated by its legislative history.

‘We disagree.’[14]

The High Court found that the ‘Sham contracting’ protections under the Fair Work Act 2009 (Cth) concern the character of the employment relationship between the employer and the employee or prospective employee, rather than whether an employee is told that a contract for services exists between the employee and the employer, or the employer and a third party.

This decision of the High Court of Australia will have a profound impact on the practice of engaging labour hire/contractors, and will have significant implications for the use of these arrangements across the Victorian public sector.