ABCC SHAM CONTRACTING INQUIRY REPORT 2011

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1

ABCC
SHAM CONTRACTING INQUIRY

REPORT 2011
Office of the Australian Building and Construction
Commissioner

November
2011



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2

Published by the Office of the Australian Building and
Construction Commissioner

www.abcc.gov.au


COMMENTS AND ENQUIRIES

The ABCC welcomes comments and enquiries.


Please contact:

ABCC

GPO Box 9927

Melbourne VIC 3001

Telephone: 1800 003 338

Email: enquiry@abcc.gov.au

www.abcc.gov.au


The ABCC encourages the dissemination and exchange of information provided
in this Report
.

Generally, the Commonwealth owns the copyright in all material produced by the ABCC.

All material presented in this document is provided under a
Creative Commons Attribution 3.0
Australia
, with the exception of the Commonwealth Coat of Arms, the ABCC logo, photographic
images and content supplied by third parties.

The details of the releva
nt licence conditions are available on the
Creative Commons

website, as is
the full legal code for the
CC BY 3.0 AU li
cense.

This document must be attributed as the
ABCC Sham Contracting Inquiry Report 2011.

Designed and typeset by
www.saltcreative.com


IMPORTANT NOTICE


PLEASE READ

This document is produced for general informa
tion only

and does not represent a statement of the
policy of the

Commonwealth of Australia. While reasonable efforts

have been made to ensure the
accuracy, completeness

and reliability of the material contained in this document,

the
Commonwealth of Austra
lia and all persons acting

for the Commonwealth preparing this
Report

accept no

liability for the accuracy of or inferences from the material

contained in this publication,
or for any action as a result

of any person’s or group’s interpretations, deduction
s,

conclusions or
actions in relying on this material.








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ACKNOWLEDGMENTS

The ABC Commissioner acknowledges the following individuals and organisations that contributed
during the Inquiry process.

Project team

Cliff Pettit
-

S
ecretariat of the Inquiry

Tone Doyle

Jessica Kendall

Glyn Cryer

Sandra Scalise


Facilitators


Capire

Consulting

Chris Robinson

Sally Abbott


Scribes who participated from each state

Sarah Bulford

Clint Walker

Matthew Gallus

Sarah Lithgow

Joel Cross

Kathleen Farrell

Felicity
McGrath

Morris Holder

Chris Stanley

Sandra Massara

Jane Hollway

Simon O’Dea

Matthew Hurst


Key external contributors

Mark Jackson


ATO

John Leonard


ATO

Brett Bassett


ASIC



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For assistance in drafting Terms of Reference

Rachel Doyle SC


For assistance in

drafting Discussion Paper

Corrs Chambers Westgarth


For assistance in drafting Inquiry Report

Blake Dawson


Panel Members


First name

Surname

Organisation

CANBERRA



Richard

Calver

Master Builders Australia


Liesl

Centenera



Office of Industrial
Relations, ACT

Mark

Jackson



ATO
-

Australian Business Register

John

Leonard

ATO
-

Employer Obligations

Lachlan

Riches



Taylor & Scott

Greg

Robertson

Office of the Fair Work
Ombudsman

Cameron

Roles

Australian National University

SYDNEY

Brett

Bassett

Australian Securities and
Investments Commission


Joe

Catanzariti

Clayton Utz

Mark

Jackson



ATO
-

Australian Business Register

John

Leonard

ATO
-

Employer Obligations

Mark

Davidson

Office of the Fair Work
Ombudsman

Ron

McCallum

University of Sydney

Brian


Seidler

Master Builders Association of
NSW

BRISBANE

Brett

Bassett


Australian Securities and
Investments Commission



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5

Breen

Creighton


RMIT University

John

Crittall


Master Builders Association,
Queensland

Mark

Jackson


ATO
-

Australian Business Register

Russell

Jacob


Office of the Fair Work
Ombudsman

John

Leonard


ATO
-

Employer Obligations

Vince

Rogers


Blake Dawson



MELBOURNE

Brett


Bassett

Australian Securities and
Investments Commission

Mark

Jackson

ATO


Australian Business
Register

Rick

Knowles

Civil Contractors Federation

John

Leonard

ATO


Employer Obligations

Daniel

Mammone

Australian Chamber of Commerce
and Industry

Greg

Robertson

Office of the Fair work Ombudsman

Andrew

Stewart

University of South Australia


PERTH

Kim

Richardson

Master Builders Australia

WA

Leigh

Quealy

Office of the Fair Work
Ombudsman

Mark

Jackson



ATO
-

Australian Business Register

John

Leonard

ATO
-

Employer Obligations

Jonric

Ridley

Chamber of
Commerce and
Industry WA

Mike

Dodgson

Chamber of Commerce and
Industry WA

Nicholas

Ellery

Corrs Chambers Westgarth






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6

Contents

FOREWORD

9

1.

INTRODUCTION AND CONDUCT OF THE INQUIRY

10

(a)

Sham contracting


the scope of the Inquiry

10

(i)

Common law


a ‘sham’

10

(ii)

Employee and contractor


definitions

10

(iii)

The Discussion Paper

11

(i
v)

The statutory approach to sham contracting

12

(v)

Submissions about the definition

12

(vi)

The scope of this Inquiry

13

(b)

Why an Inquiry into sham contracting?

13

(i)

Effect of sham contracting in the building and construction industry

13

(ii)

History of sham contracting in the
building and construction industry

16

(iii)

History of litigation in relation to sham contracting

16

(iv)

Conclusion

17

(c)

Power to

conduct the Inquiry

17

(d)

Terms of Reference

19

(e)

The Inquiry process

20

(i)

The Discussion Paper

20

(ii)

The Discussion Paper and labour hire

20

(iii)

Submissions

21

(iv)

Roundtables

22

(v)

Post Roundtable consultation

23

(vi)

The position of the ACTU and the construction unions

25

(vii)

Other responses to sham contracting

25

2.

SUMMARY OF RECOMMENDATIONS

27

3.

BACKGROUND TO THE INQUIRY

30

(a)

The legislation

30

(i)

The history and development of s 900 WR Act

30

(ii)

The ignorantia defence

34

(iii)

Sections 357


359 of the FW Act

36

(b)

The decided cases

37



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(i)

Construction, Forestry, Mining and Energy Union v Nubrick Pty Ltd

[2009]
FMCA 981

37

(ii)

Fair Work Ombudsman v Land Choice Pty Ltd
[2009]
FMCA 1255

38

(iii)

Fair Work Ombudsman v Centennial Financial Services Pty Ltd & Ors
[2010]

FMCA 863 (liability) and
[2011]

FMCA 459 (penalty)

39

(iv)

Darlaston v Risetop Construction Pty Ltd & Ors
[2011]
FMCA 220

40

(v)

ABCC V Rapid Formwork Constructions Pty Ltd & Anor
[2011]
FMCA
649

42

(vi)

Fair Work Ombudsman v Contracting Plus Pty Ltd & Anor
[2011]

FMCA
191

43

(c)

Tools available to the Regulator


the ABCC’s current approach

44

(i)

Referrals
to External Agencies

46

(ii)

Targeted Campaigns

46

4.

CONSULTATION AND ENGAGEMENT

48

(a)

The written submissions

48

(i)

Employer Representatives

49

(ii)

Subcontractors

61

(iii)

Re
sources sector

64

(iv)

Academics

66

(v)

Other submitters

73

(b)

The CFMEU's paper

81

(c)

Th
e Roundtable consultations

89

(i)

Background

89

(ii)

Preliminary considerations

89

(iii)

The nature and extent of sham contracting

90

(iv)

Drivers of sham contracting

91

(v)

Responses to sham contracting

92

(vi)

Legislative responses

92

(vii)

Regulatory responses

95

(v
iii)

ABCC policy responses

105

(ix)

Evaluation of the Roundtable consultations

11
2

5.

FINDINGS

114

(a)

Defining the issue

114

(i)

Incidence and prevalence of sham contracting

114

(ii)

Drivers of sham contracting

116



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8

(iii)

Phoenix Companies

118

(iv)

The need for further research

119

(v)

The ABN issue

120

(b)

Legislative amendment

123

(i)

Definitions


‘employee’, ‘employer’ and ‘sham contracting’

123

(ii)

Sham Contracting Provisions

125

(c)

Guidance and education materials

127

(i)

Education Strategy

127

(d)

Future compliance activity

129

(i)

Future compliance planning

129

(ii)

Development of ABCC Fair Work Contractor Statement

132

(iii)

National Code

133

(e)

Voluntary registration scheme

134

(f)

Other issues raised during the Inquiry

135

(i)

Labour hire arrangements

135

(ii)

Joint employment

138

(iii)

Dependent contractor

140

6.

APPENDICES

141

Appendix 1


G
lossary

141

Appendix 2


Australian Building and Construction Commissioner Speech to
Australian Labour Law Association Conference,

19 November 2010

143

Appendix 3


Australian Building and Construction Commissioner Speech to 19th
Annual Labour Law Conference,
1 August 2011

151

Appendix 4


List of Submissions

159

Appendix 5


Summary of Submitters' Responses to Discussion Questions

161











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9

FOREWORD

The ABCC’s Sham

Contracting Inquiry was commenced to gather relevant data and stakeholder
views as a step toward formulating policy and regulatory responses to tackle the persistent problem
of sham contracting in sectors of the building and construction

industry.

Sham co
ntracting in the building and construction industry, where it occurs, has widespread
consequences for affected employees and decent employers
; s
o too for

the
building and
construction

industry and in the broader economy.

Given the operational norms of the
building industry, contracting is very much a part of our life, and
legitimate contracting has been critical to
the

success
of the
building and construction

industry.
Legitimate contracting is not the subject of this Inquiry.

As the workplace regulator cha
rged with enforcing sham contracting legislation in the
building and
construction

industry, it is incumbent on the ABCC to deploy targeted, effective and fair regulatory
interventions to ensure a level playing field and to eliminate unlawful activity.

The
Inquiry considered written submissions and related documents, as well as the views of industry

(individuals, small and large business)
, peak bodies, academics and government representat
ives,
gained during R
oundtable discussions held in Canberra, Sydney, Me
lbourne, Perth and Brisbane. I
asked Inquiry participants to bring their own experience of sham contracting, and to suggest ways
to deal with it more effectively. Despite the complexity of the issues in question, contributors
delivered valuable and actiona
ble insights
. Many of their contributions are reflected in the
recommendations contained in this Report.

I was encouraged that such a great cross
-
section of contributors lent their perspectives with a
willingness to engage, collaborate and genuinely consi
der problems and propositions. However,
the absence of the voice of organised labour during the Inquiry was regrettable. It was an
opportunity missed to present the views of the union movement on an important issue.

I particularly thank representatives o
f the Australian Taxation Office, Australian Business Register,
Australian Securities and Investments Commission and the Office of the Fair Work Ombudsman for
the investment of their time and expertise. The experience of
our

working together during the
In
quiry
is a good foundation for

a more coordinated whole
-
of
-
government response to sham
contracting in the future.

In this
R
eport, the ABCC presents the results of a thoughtful and comprehensive review of sham
contracting. In our attempts to represent stake
holder positions faithfully, I must acknowledge that
the multifarious nature of anecdotes and perspectives put forth was a challenge to represent and
summarise neatly.

What is patently apparent


and widely agreed


is that the task of devising robust, s
ustainable
solutions to this problem is considerable. There will be no quick fix.

The difficulty of the task is, however, no barrier to policy
-
making, nor an excuse for any failure to
commit to action on this issue. The ABCC has to date commenced civil pe
nalty litigation in respect
of four sham contracting matters and we will continue our program of investigations
,

audits
and civil
penalty litigation
aimed at eliminating sham contracting.

This Inquiry and Report are the continuation of a problem
-
solving pr
ocess that has been traversed
in various contexts for many years. The findings and recommendations outlined here are intended
to inform the ongoing discussion on how best to address the problem of sham contracting, and to
continue the partnership between
the ABCC and the industry on this important issue.


Leigh Johns

Australian Building and Construction Commissioner




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10

1.

INTRODUCTION AND CONDUCT OF THE INQUIRY


(a)

Sham
c
ontracting



t
he scope of the Inquiry

1.1.

One of the issues in dealing with sham contracting is that there is no widely accepted
definition for the term. Very few of the submissions to the Inquiry attempted to explain
what sham contracting is. In a sense, sham contracting fits into Lord Wedderbu
rn's

elephant
-
test




it is an animal too difficult to define, but easy to recognise when you see
it.
1

1.2.

However, it is fundamentally important to consider what the scope of the Inquiry should be
when the term sham contracting (or

sham arrangement

) is
used. In doing so, the Inquiry
d
oes not try to ‘define the elephant’
. Rather, it recognises the need to approach the topic
with a degree of clarity and consistency, noting its regulatory responsibilities as identified in
s
3 and

s

10 of the BCII Act.

(i)

Com
mon law


a

sham


1.3.

Australian courts have considered the common usage of the term

sham


and applied it.
For example, in
Sharrment Pty Ltd v Official Trustee in Bankruptcy
2
, Lockhart J said:


A 'sham'… is something that is intended to be mistaken for some
thing else or that
is not really what it purports to be. It is a spurious imitation, a counterfeit, a
disguise or false front. It is not genuine or true, but something made in imitation of
something else or made to appear to be something which it is not.

It is something
which is false or deceptive.


1.4.

At common law, a

sham arrangement


occurs where the parties to an employment
relationship intentionally misrepresent or disguise that relationship as being a contracting
relationship. There are elements of
premeditation and subterfuge; such arrangements are
intended to hide the actual relationship between the parties and make it appear as though
there is a totally different kind of relationship. Parties know and intend to create an
employment relationship (
contract of service), but try to masquerade it as a contracting
arrangement (contract for services) for the benefit of one or both parties. In this sense, a

sham arrangement


involves intended deception.

(ii)

Employee and contractor


definitions

1.5.

At a very hi
gh level, workers are considered employees where they are subject to the
control and direction of their employer. These are person working under contracts
of

service. In contrast, contractors have historically been considered to be business owners
workin
g for a principal under contracts
for
services.

1.6.

However, depending on the legislative and regulatory context in which the distinction
between an employee and contractor is made, differing specific definitions are used. For
employment and industrial purpos
es, generally, the common law 'multiple indicia' test is
used.

1.7.

Under the common law approach, the courts consider the totality of the relationship
between the parties to determine its nature. The multiple indicia are a guide within that
examination.

1.8.

The
se were set out, and applied, in two leading High Court decisions:
Stevens v Brodribb
Sawmilling Co Pty Ltd
3

and
Hollis v Vabu Pty Ltd
.
4




1


Lord Wedderburn,
The Worker and the Law
, (3rd ed, Penguin Books Ltd, 1986) at 116; see also
On Call Interpreters and
Translators Agency Pty Ltd v Commissioner of Taxation (No 3)

[2011] FCA 366 at 205 per Bromberg J.

2


(1988) 18 FCR 449 at 454. The submission of Professor Andrew Stewart and Ca
meron Roles, at page 1, notes that this
description has been widely adopted in subsequent Australian cases.



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1.9.

The indicia the courts have used are summarised below. No one individual factor is
determinative. There is no quantif
iable benchmark over which a person is considered
either an employee or contractor. It is the totality of the relationship that is considered.



Key factors to be taken into account when determining whether a worker is a
contractor or an employee

Contractor

Employee

The worker chooses how, where and
when to perform tasks

The employer exercises, or has the right
to exercise, control over the manner in
which work is performed, place of work
and/or hours of work

The worker works on a number of
different projects for different principals or
genuinely has the right to do so

The worker works exclusively for the
employer

The work can be delegated, outsourced
or subcontracted to one or more third
parties

The work cannot be delegated,
outsourced or s
ub contracted to third
parties

The worker provides and maintains their
own equipment

Tools and equipment are provided by the
employer

The worker has separate places of work
and/or advertises their services at large

The worker is presented to the world at

large as an emanation of the business
(
e.g.

works at or from the employer's
business location, is required to wear a
uniform)

The worker is responsible for business
expenses such as income tax and
insurance

The employer deducts income tax and
makes super
annuation contributions on
the worker's behalf

The worker is paid by reference to
completion of tasks
5

The worker is paid a periodic wage or
salary

The worker carries a risk of loss or has
the opportunity to profit from undertaking
the work

The worker
does not stand to make
profit/loss

(iii)

The Discussion Paper

1.10.

The Discussion Paper, at page 3, puts forward the following preliminary guide to the
concept of

sham arrangements


as they relate to the building and construction industry:






3


Stevens v Brodribb Sawmilling Co Pty Ltd


(1986) 160 CLR 16.

4


Hollis v Vabu Pty Ltd

(2001) 207 CLR 21.

5


When considering this factor for the purposes of rights and obligations under the FW Act, it is important to note that the FW

Act
recognises that special arrangements can be made for employees to be paid by reference to completion of tasks as 'pieceworker
s
'
in some circumstances. Under the FW Act, pieceworkers are employees, not contractors. Whether or not an employee is a
pieceworker is determined by reference to the relevant industrial instrument (e.g. enterprise agreement or modern award), or,

in
the c
ase of an award/agreement
-
free employee, by definition set out in regulation 1.12 of the
Fair Work Regulations 2009

(Cth).
Piecework arrangements in industrial instruments are generally subject to strict rules and safeguards. For example, clause 1
9.6
of
the
Building and Construction Industry General On
-
Site Modern Award 2010

requires a written agreement to be made between
the employer and the employee before piece rates can be paid. Piece rates agreements can be terminated upon four weeks'
written notice
. Where pieceworker arrangements are properly in place, the fact that a worker is paid by reference to the
completion of tasks will not indicate that a worker is a contractor.



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12


A "
sham arrangement
" or
"
sham contract
" involves misrepresenting or
disguising an employment relationship as one involving a principal and contractor
under a contract for services. This most commonly occurs in one of three ways:

1.

structuring contracts to emphasise features of a c
ontracting arrangement
rather than an employment relationship;

2.

engaging workers through third party labour hire agencies
6
; and/or

3.

interposing an entity that contracts with the business, rather than the
worker in his or her personal capacity.


1.11.

In effect, a
core element of a

sham arrangement


is that a worker, who in reality is an
employee, is held out to be a contractor. The Discussion Paper sets out, at Parts 8 and 9,
the reasons why some parties may seek to engage in such behaviour, and the potential
imp
acts of sham contracting.

(iv)

The statutory approach to sham contracting

1.12.

The terms

sham contracting


and

sham arrangement


are not defined legislatively at
Commonwealth or State level in Australia. The issue was discussed by the House of
Representatives Sta
nding Committee on Employment, Workplace Relations and Workforce
Participation in the
Making it Work

Inquiry, but was not determined.

1.13.

The current provisions of the

Fair Work Act 2009

(FW Act)

address specific conduct which
is referred to as sham contractin
g. However, as the submission of the
Master Plumbers
and Mechanical Services Association
notes, the words sham contracting only appear in the
heading to Part 3
-
1, Division 6 of the FW Act.
7

They are not included in the text of the
sections themselves (no
r is sham contracting defined in the FW Act).

1.14.

Consequently, behaviour regulated by
s

357,

s

358 and

s

359 of the FW

Act forms part of
the concept of sham contracting. Under that Act, an employer must employ an employee,
but misrepresent the relationship as a contract for services, before it is a sham. Additional
sanctions exist if the employer is reckle
ss in representing a relationship as being a contract
for services, when it is in fact a contract of service.

1.15.

Otherwise there is recognition of the application of the common law test for determining
whether someone is an employee or an independent contract
or, with one of the potential
consequences being that underpayment proceedings can be brought if a person described
as a contractor is found to be an employee.

(v)

Submission
s

about
the
definition

1.16.

A number of the submissions to this Inquiry highlighted the
lack of an accepted definition of
what constitutes sham contracting. This lack of an accepted definition increased the scope
of the submissions put to this Inquiry. Several of the submissions set out various
definitions. One submission asserted that a b
road definition ought to be adopted, that
definition being one that:


…would see "sham contracting" as encompassing any attempt to disguise an
employment relationship, whether successfully or unsuccessfully.

8




6


Several of the submissions to the Inquiry

voiced concerns that the Discussio
n Paper expressed a final view that third party labour
hire relationships lead to
sham contracting
. These concerns are misplaced and have been dealt with in section 1(e)(ii) of this
Report. The Discussion Paper did not represent the concluded views of th
e ABC Commissioner or of this Inquiry process and
Report.

7


Submission of Master Plumbers and Mechanical Services Association of Australia, "Sham arrangements and the use of labour
hire in the building and construction industry", at pages 2 and 3.

8


See

the submission of Stewart and Roles

to the ABCC Sham Contracting inquiry
.



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13

(vi)

The scope of this Inquiry

1.17.

This Inquiry recogni
ses that there is no definition of sham contracting as such and it does
not purport to propose a definition of sham contracting as an outcome of the Inquiry.
Nevertheless, given the regulatory responsibilities of the ABCC
9
, the Inquiry is concerned
with a
ny situation where someone was described as or asserted to be a contractor when
they should, at law, have been an employee, no matter how the situation arose.

1.18.

Further, and as noted previously, when one considers the submissions to this Inquiry, it is
obvio
us that there is no universal understanding of the concept of sham contracting. The
purpose of this Inquiry is to determine if there is a problem of sham contracting in the
building and construction industry and, if so, to identify the extent of that prob
lem and
possible solutions to it. In doing so, the submissions and experiences of all sectors in the
industry are useful and important. To restrict the scope of sham contracting from the
outset might unduly restrict the manner in which some submissions a
re considered.

(b)

Why an Inquiry into
s
ham
c
ontracting?

(i)

Effect of sham contracting in the building and construction industry

1.19.

Sham contracting adversely affects every participant in the building and construction
industry. In a statement to the Senate Standing

Committee on Education, Employment
and Workplace Relations, on 20 October 2010, the ABC Commissioner said:



The existence of sham contracting in any industry adversely affects decent
employers, employees and government revenue.

Decent employers in the bu
ilding and construction industry are at a competitive
disadvantage to those who seek to engage workers through bogus contracting
arrangements. They are then faced with an invidious choice: join in the indecency
of sham contracting or go out of business.

F
or workers, it means a reduced capacity to enjoy basic conditions of employment
such as annual leave and sick leave. It means that work security is jeopardised
and it is usually attended by the absence of a commitment to formal training.

As a whole, there

is reduced workplace health and safety performance and poor
workplace relations. For government, sham contracting has implications for
taxation revenue and the degree of equity in the tax system.



However, it is vital that industry stakeholders engage w
ith government agencies in
[an] endeavour [to eliminate sham contracting]. Employer associations, with their
membership of decent employers under attack from sham operators, and unions,
representing the interests of workers who are being ripped off, both
have important
roles to play.


1.20.

The threat posed by sham contracting is amplified in the building and construction industry
compared to othe
r industries
. According to data provided by the
ABS
, and quoted in the
Discussion Paper
10
, the proportion of independ
ent contractors working in the building and
construction industry is easily the highest of all industries surveyed. Bearing in mind the
limitations expressed by the ABS in considering the data, the available statistics indicate
that the building and const
ruction industry is uniquely at risk of being exploited by sham
operators.





9


See in particular section 3 and 10 of the BCII Act respectively.

10


See section 4.2 on page 11 of the
ABCC Sham Contracting Inquiry
Discussion Paper.



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14

1.21.

The Discussion Paper, at Parts 8 and
9
,

set
s

out further the effects of sham contracting on
workers, employers, the industry and the economy generally.

1.22.

This
R
eport will often make reference to the building and construction industry as a generic
term covering the breadth of what might be popularly understood to be the building and
construction industry. However, jurisdictionally, when considering what ought to
and what
can be done, such recommendations will be confined to building industry participants as
defined by the BCII Act carrying out building work, as defined by the BCII Act. This
Report

does not make, and must not be read as making, recommendations abo
ut sham
contracting beyond the jurisdictional scope of the ABCC.

1.23.

For ease of reference the relevant definitions are set out below:

building industry participant

means any of the following:

(a)

a building employee;

(b)

a building employer;

(c)

a building contractor;

(d)

a person who enters into a contract with a building contractor under which
the building contractor agrees to carry out building work or to arrange for
building work to be carried out;

(e)

a building association;

(f)

an officer,
delegate or other representative of a building association;

(g)

an employee of a building association.

building employee
means:

(a)

a person whose employment consists of, or includes, building work; or

(b)

a person who accepts an offer of engagement as an
employee for work
that consists of, or includes, building work.

building employer

means an employer who employs, or offers to employ, building
employees.

building contractor

means a person who has entered into, or who has offered to
enter into, a contract
for services under which the person:

(a)

carries out building work; or

(b)

arranges for building work to be carried out.

building association

means an industrial association whose eligibility rules allow
membership by at least one of the following groups:

(a)

building employers;

(b)

building employees;

(c)

building contractors;

whether or not those rules also allow membership by other persons.



Error! Unkno
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15

building work

(1)

Subject to subsections (2), (3) and (4),
building work

means any of the
following activities:

(a
)

the construction, alteration, extension, restoration, repair, demolition or
dismantling of buildings, structures or works that form, or are to form, part
of land, whether or not the buildings, structures or works are permanent;

(b)

the construction, alt
eration, extension, restoration, repair, demolition or
dismantling of railways (not including rolling stock) or docks;

(c)

the installation in any building, structure or works of fittings forming, or to
form, part of land, including heating, lighting, air
-
conditioning, ventilation,
power supply, drainage, sanitation, water supply, fire protection, security
and communications systems;

(d)

any operation that is part of, or is preparatory to, or is for rendering
complete, work covered by paragraph (a), (b) or
(c), for example:

(i)

site clearance, earth
-
moving, excavation, tunnelling and boring;

(ii)

the laying of foundations;

(iii)

the erection, maintenance or dismantling of scaffolding;

(iv)

the prefabrication of made
-
to
-
order components to form part of
any
building, structure or works, whether carried out on
-
site or
off
-
site;

(v)

site restoration, landscaping and the provision of roadways and
other access works;

but does not including any of the following:

(e)

the drilling for, or extraction of, oil or natur
al gas;

(f)

the extraction (whether by underground or surface working) of minerals,
including tunnelling or boring, or constructing underground works, for that
purpose;

(g)

any work that is part of a project for:

(i)

the construction, repair or restoration

of a single
-
dwelling house;
or

(ii)

the construction, repair or restoration of any building, structure or
work associated with a single
-
dwelling house; or

(iii)

the alteration or extension of a single
-
dwelling house, if it
remains a single
-
dwelling house
after the alteration or extension.

(2)

Paragraph (1)(g) does not apply if the project is part of a multi
-
dwelling
development that consists of, or includes, the construction of at least 5
single
-
dwelling houses.

(3)

Subject to subsection (4),
building work

includes any activity that is
prescribed by the regulations for the purposes of this subsection
.

(4)

Building work

does not include any activity that is prescribed by the
regulations for the purposes of this subsection.

(5)

In this section:



Error! Unkno
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1
6

Land

includes
land beneath water.

(ii)

History of sham contracting in the building and construction industry

1.24.

The issue of sham contracting in the building and construction industry, generally, has
been the subject of debate for some time.

1.25.

Sham arrangement provisions were ori
ginally introduced through the
Workplace Relations
Act 2009
(
WR Act
)

by a 2006 amendment. Those provisions were substantially replicated
in Division 6, Part 3
-
1 of the FW Act, albeit with some amendments.
11

They are aimed at
sanctioning employers who misr
epresent, knowingly or recklessly, that a contract of
employment (employment relationship) is a contract for services (contracting relationship).


The legislative history is discussed in detail in Section 3 of the
Report
.

(iii)

History of litigation in relation
to sham contracting

1.26.

The sham arrangement

provisions of the FW Act (and its predecessor, the WR Act) have
not, to date, been used very often. As a result, there are very few decisions on the issue.
12

Again these are discussed in
S
ection 3 of the
Report
.

1.27.

The submission of the
Australian Industry Group (
AiG
)

quotes Mr Nicholas Wilson of the
Office of the Fair Work Ombudsman (FWO) when he gave evidence to Senate Estimates
on 23 February 2011:


… as at
mid
-
February
, we had 26 matters being investigated which
concerned
potential contraventions of the of the sham contracting provisions, particularly
under section 357 of the Fair Work Act. We had a further 137 matters which relate
to the general underpayment sections for assertions that a person is a contractor
and not an employee. To give you some sort of scale, that is within the context of
about 5,800 matters on hand in total. It is a small number, but I certainly do not
wish to say, by extrapolation from that, that sham contracting is a small issue


that
i
s certainly not what I am saying.


1.28.

The AiG submission goes on to quote the evidence at Senate Estimates given by the ABC
Commissioner, that:


We have 14 investigations on foot. We have, through our legal department, 19
matters where ther
e are breaches
. T
hat is 33 matters which are currently sitting
with us.


1.29.

According to the ABCC’s own figures it has finalised 192 investigations in relation to
allegations of sham contracting. As at 1 November 2011, the ABCC also has 24 active
investigations. Collectivel
y, these investigations cover 296 allegations of s
ham contracting.
Approximately, $79,000
has been recovered for
building and construction

workers who
have been the victim of sham contracting.

1.30.

As can be seen, one may argue that the current sham contracting

provisions of the FW Act
generate modest amounts of litigation. There are a number of reasons which may
contribute to this, including:



The provisions only apply to circumstances where an employer has
misrepresented a contract of service as being a contra
ct for services, worker
driven or supply
-
side driven sham contracting is not made

unlawful under the FW
Act. There must be a person who meets the common law test for being an



11


The new
FW Act

provisions did not retain the "sole or dominant purpose test" in relation to the dismissal of employees and their
re
-
engagement as contractors.

12


See
CFMEU v Nubrick Pty Ltd
[2009] FMCA 981;
Fair Work Ombudsman v Land Choice Pty Ltd

[2009] FMCA 1255; and

Fair
Work Ombudsman v Centennial Financial Services Pty Ltd & Ors

[2010] FMCA 863
;
ABCC v Rapid Formwork Constructions Pty
Ltd & Ano
r

[2001] FMCA 649 and
Fair Work Ombudsman v Contracting Plus Pty Ltd & Anor

[2011] FMCA 191
.



Error! Unkno
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17

employee, but whom the employer has represented is working as an independent
con
tractor. An employer who so misrepresents the relationship is not absolved of
legal liability if it did so at the behest of the employee.



The provisions

piggyback


off of the common law definitions of

contract of
service


and

contract for services

. T
hese concepts are not simple and can be
difficult to apply in practice.
13



The provision relating to employers making misrepresentations can be defended
where the employer can show that they both did not know and were not reckless
as to whether the contract
in question was a contract for services or a contract of
service.

1.31.

Even where litigation is successful, the result is necessarily restricted to the circumstances
of the particular case. Approaching the issue of sham contracting in the building and
construc
tion industry by relying solely on enforcing the FW Act provisions in particular
cases is inefficient and unlikely, on its own, to significantly change the industry as a whole.


(iv)

Conclusion

1.32.

As noted above, the practice of sham contracting has pervasive nega
tive effects on the
building and construction industry, as well as other industries. While much of the
contracting that occurs in the building and construction industry is lawful, sham contracting,
where it occurs is a problem which affects workers, emplo
yers, regulators and the
government and economy generally. It intersects disciplines such as employment law,
commerce, taxation and economic policy.


1.33.

It is a matter about which many players in the building and construction industry have
expressed opinions

over the course of at least the last two decades. Consequently, one is
entitled to assume that the issues related to sham contracting are entrenched as attitudes,
in both employers and workers (and their respective representatives). Cultural change is
r
equired if any real progress in stamping out sham contracting is to be made.


1.34.

The issues in question are complex. The current legislative protections, and the resultant
civil penalty litigation, in and of themselves, do not satisfactorily address the issu
e. The
situation requires that the participants in the building and construction industry consider
ways in which
to more effectively deal with sham contracting
.


1.35.

As the workplace relations regulatory agency for the building and construction industry, the
ABCC plays a central role in examining and addressing sham contracting.


(c)

Power to conduct the Inquiry

1.36.

The main object of the
BCII Act

is:



to provide an improved workplace relations framework for building work

to
ensure that building work is carried out fairly, efficiently and productively and for the
benefit of all building industry participants and for the benefit of the Australian
economy as a whole.

14

1.37.

To meet this object, the BCII Act gives the ABC Commissi
oner a number of broad
functions.
15

Relevantly, these functions include:




13


See, for example, the High
Court decisions of
Hollis v Vabu

(2001) 207 CLR 21 and
Stevens v Brodribb Sawmilling Co Pty Ltd

(1986) 160 CLR 16.

14


See section 3(1) of the BCII Act.

15


See section 10 of the BCII Act.



Error! Unkno
wn document property name.


18



monitoring and promoting appropriate standards of conduct by building industry
participants including under the BCII Act, the
Independent Contractors

Act 2006
(IC Act)
,
and
the FW Act
;




p
roviding assistance and advice to building industry participants regarding their
rights under the BCII Act, the IC Act and the
FW Act; and



d
isseminating information about
the BCII Act, the IC Act
,

and

the FW Act
,
, and
about other matters affecting buil
ding industry participants, including
disseminating information by facilitating ongoing discussions with building
industry participants.

1.38.

It is in this context that the Inquiry into
s
ham
c
ontracting was announced and conducted,
pursuant to the ABC Commissio
ner's functions under the BCII Act. Each of the above
specific functions is capable of supporting the steps taken by the ABC Commissioner in
releasing the Discussion Paper, calling for submissions, c
onvening Roundtable

discussions
and producing this
Repor
t
. However, as noted in a 2010 address to the Biennial Australian
Labour Law
Association
Conference, there is no set model for such a process.

1.39.

The purpose of the Inquiry was, and is, to generate ideas and to clarify issues around
sham contracting relation
ships. Ultimately, it is h
oped that the submissions, the
R
oundtable discussions, the Inquiry and this
R
eport provide valuable information which can
be used by all parties to reduce the incidence of sham contracting in the building and
construction industr
y.

1.40.

What is obvious from a full reading of the objects and functions in the BCII Act is that the
ABCC is not only a law enforcement agency. It is a regulatory agency which has law
enforcement functions.

1.41.

The BCII Act provides in
s

3(2) that it aims to achie
ve its main object by, amongst others,
the following means:



s 3(2)(b)

-

promoting respect for the rule of law;



s 3(2)
(c)
-

ensuring respect for the rights of building industry participants;

and



s 3(2)
(h)

-

providing assistance and advice to building
industry participants in
connection with their rights and obligations under relevant industrial laws.

1.42.

It is clear that the BCII Act is not only concerned about law enforcement and that the ABCC
is not only a law enforcement agency. Moreover the above prov
isions and the functions in
s 10 of the BCII Act provide the basis under statute to hold an inquiry in the terms that were
proposed.

1.43.

The fact that the Inquiry has no power to give

witnesses


the usual protections that a Royal
Commission or Parliamentary i
nquiry can offer does not render the Inquiry beyond power.
Quite apart from there being statutory power to hold an inquiry, as stated above, there are
many examples of inquiries or reviews where there is no power to compel someone to
attend and thus no co
mmensurate power to offer protections. It
does not
mean they are
beyond power and it certainly makes them no less valid.

1.44.

Sections 3 and 10 of the BCII Act impose no limitations on the manner in which the ABCC
fulfils its functions under the BCII

Act. Rat
her, the ABC Commissioner's function of
disseminating information expressly includes facilitating ongoing discussions with building
industry participants. As was common ground across the submissions, the ABCC has a
role in providing education to industry
participants in order to make them more aware of all
issues affecting the building and construction industry. In its sub
mission to the Inquiry, the
AiG
, after noting the functions of the ABC Commissioner under
s

10 of the BCII Act, said:

“The

above key fu
nctions confirm the important role of the ABCC in educating
building industry participants about the sham contracting laws and other provisions
of the Fair Work Act and Independent Contractors Act which protect employees


Error! Unkno
wn document property name.


19

and independent contractors.

The is
suing of the Discussion Paper by the ABCC has assisted in educating
building industry participants but far more needs to be done before any legislative
changes are contemplated.


16

1.45.

Since that time, the Roundtables have been held and this Report has been pu
blished. In
addition, as outlined later in the Report, further empirical research into the incidence of
sham contracting in the building and construction industry will be commissioned.

1.46.

The manner in which the ABCC compiles, considers, publishes and dissem
inates
information are all matters about which the BCII Act is silent. The ABCC has scope to
consider how best to approach an issue, like sham contracting, in order to meet its
obligations under the BCII Act. As noted above, there is no set model.

1.47.

The AB
CC
does not
need to be established with the powers of a Royal Commission in
order for it to call for submissions and hold Roundtables on an important issue affecting the
building and construction industry. Participants were forewarned that submissions and

discussions were not privileged and any information provided may trigger investigations
and prosecutions. They were also reminded and encouraged to
report

any instances of
sham contracting through the usual avenues. The volume of sham contracting
inve
stigations evidences that those affected by it are in the ordinary course of the ABCC’s
regulatory work reporting alleged breaches through those avenues.

(d)

Terms of Reference

1.48.

On 19 November 2010, the ABC Commissioner announced that the ABCC would conduct
an
Inquiry into sham contracting in the building and construction industry in Australia.

1.49.

The terms of reference in respect of the Inquiry are as follows:



The matters that will be considered in this
I
nquiry include:



The sham arrangement provisions in sections
3
57
-
359 of the Fair Work Act 2009
(Cth) (FW

Act);



Employees, independent contractors, subcontracting and working arrangements
in the building and construction industry;



The role of labour hire companies in the building and construction industry;



The
current definitions of 'employee' and 'independent contractor' at common law
and in statutes;



The evasion by employers of responsibilities owed to employees in the building
and construction industry by use of devices including subcontracting and labour
hir
e arrangements;



The evasion by workers in the building and construction industry of taxation and
other responsibilities including creating businesses and partnerships;



Competition and 'undercutting' in the building industry; the role played by labour
hire
companies and subcontractors; and



Fairness: inequality of bargaining power as a driver in contractual negotiations
between employers and workers.

1.50.

When providing a response to the Discussion P
aper

an
d/
or participating in the Round
table
discussions, parties
were encouraged to
address the
adequacy of the Terms of Reference



16


See paragraphs 60 and 61 of the Ai Group's submission to the Inqui
ry.



Error! Unkno
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20

as a basis for exploring the issues concerning sham arrangements and labour hire in the
building and construction industry.

(e)

The Inquiry process

1.51.

On 19
November

2010
,

the ABC Commissioner
announced that the ABCC would be
conducting
the

Sham

Contracting

Inquiry and
set

out the Terms of Reference
.

1.52.

The
Inquiry

process roughly followed the procedure adopted by the
Cole Royal
Commission

and t
he
Making it Work

Report
.


A discussion paper was iss
ued and a
submission process was undertaken whereby industry stakeholders had the opportunity to
make written
submissions
.

Public consultations
in the form of Roundtables were
conducted
for industry stakeholders across Australia
.

A final report
is now
pr
oduced.

(i)

The Discussion Paper

1.53.

On 22
December

2010
,

a
D
iscussion P
aper
was released which raised

issues for
discussion in
relation

to the use of sham arrangements in the building and construc
tion
industry.


The Discussion P
aper is
available from the ABCC Sham Contracting inquiry
website,
www.shamcontractinginquiry.gov.au
.

This Report should be read in
c
onjunction with the Discussion P
aper.

1.54.

S
ome comments received in the written submissions incorrectly
stated

that the Discussion
P
ape
r represents
the ABC Commissioner's
views.

The Discussion P
aper makes a clear
statement to the contrary:


This P
aper has been prepared for discussion purposes only. Whilst it has been approve
d
by the ABCC for release as a Discussion P
aper, it does not re
present the views of the ABC
Commissioner. Rather, it is designed to raise issues and enable responses to be taken into
account for the purposes of the ABC Commissioner’s Inquiry into issues arising from the use
of sham arrangements and labour hire in the

building industry.

17


1.55.

To reiter
ate, the aim of the Discussion P
aper was to generate discussion

within the
industry and
does not represent
the ABC Commissioner's

views.

Although there have
been critiques of this method of engagement it is notable that di
scussion papers are not
unique to this
Inquiry
.

They have been used effectively in both the Cole Royal Commission
and the
Making it Work

Report.

(ii)

The Discussion Paper and
l
abour hire

1.56.

There was some commentary about the assumption asserted to be inherent i
n the
Discussion Paper that labour hire arrangements were
per se

illegitimate and that

this

was a
flaw with the process of the Inquiry. As stated earlier the Discussion Paper expressly does
not state or reflect the views of the ABC Commissioner.

1.57.

Further,
as was made clear by the ABC Commissioner at all the Roundtables, there is a lot
of contracting that goes on in the building and construction industry of which the vast
majority is legitimate and with which there is no issue, and that includes labour hire
arrangements.

1.58.

However, t
he issue of labour hire arrangements was canvassed by the
Cole Royal
Commission
. While Royal Commissioner Cole made a recommendation in this regard (to
develop a

code of conduct


for labour hire in the building and construction in
dustry), the
issues that gave rise to his concerns continue to exist today.

1.59.

Whilst the application of the
Building and Construction General On
-
Site Award 2010

to
labour hire employers has, to some extent alleviated the position it was appropriate to



17


ABCC Sham Contracting Inquiry
Discussion Paper p 3.



Error! Unkno
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21

addres
s this issue even if to only clarify the legitimate role that labour hire plays in the
industry.

(iii)

Submissions

1.60.

On 22 December 2010 a c
all was made
for public submissions to the
Inquiry
. Submissions
to
the

Inquiry

had to be made in writing via an online subm
ission process by
7

March 2011
.

1.61.

Submitters were
asked

to respond to
11 discussion

questions about sham contracting
developed by the ABCC. These questions
are set out at
Appendix

5
.

The questions
were

intended to provide a summary of each participant’s v
iew on important aspects of sham
contracting.


Responses to each question were limited to 120 words.

Submitters could
enter

N/A


in the response field if questions were not

relevant to their submission.


1.62.

Submissions were reviewed by the ABCC against the
submission guidelines

and
moderation
guideli
nes

prior to being published.


All approved submissions were published
on
the

Submissions page and can be accessed at
www.shamcontracting
i
nquiry.gov.au
.

1.63.

In response, the ABCC received
21

written submissions from various industry participants.

These

submis
sions are listed in

Appendix

4
.

The
Inquiry

received
ten

submissions

from
organisations which represented the views of employers including the following:



the Hou
sing Industry Association

(HIA)
;



the Master Plumbers and Mechanical Services

Association of
Australia
(MPMSAA)
;



the Chamber of Commerce and I
ndustry, Western Australia

(CCIWA)
;



the National Electrical and
Communications Association

(NECA)
;



the Ci
vil Contractors Federation

(CCF)
;



the Australian Chamber of Comme
rce and Industry

(ACCI)
;



Master
Builders Australia

(MBA)
;



the Australian

Constructors Association

(ACA)
;



the Recruitment and Consu
lting Services Association

(RSCA)
; and



the Australian Mines & Metals Association

(AMMA)
.

1.64.

A

submission was made by BHP Billiton
. T
hree submissions were made

by subcontractors.

These

included submissions by Bobrick Constructions Pty Ltd, John Smolders a
nd
an
anonymous submission.

Given the contents of the

anonymous

submission, it was
assumed to have been made by a person who was a subcontra
ctor in the indust
ry.

1.65.

Three submissions were made by academics which in two instances involved collaboration
between

two academics.

They are as follows:



Professor
Andre
w Stewart

of The University of Adelaide

and

Mr

Cameron Roles

of The Australian National University
;



Dr
Elsa Unde
rhill of Deakin University; and



Associate Professor
John Howe and
Ms
Tess Hardy of
T
he University of
Melbourne.

1.66.

There were also four submissions by other submitters. They are as follows:



the Australian Human Resources Institute;



Error! Unkno
wn document property name.


22



Chris Mazzotta
of Troubleshooters Available;



Peter Bosa of Troubleshooters Available and Odco Contracting Systems
Australia; and



the New South Wales Government.

(iv)

Roundtables

1.67.

As part of the
Inquiry

the ABCC facilitated five Roundtables for industry stakeholders to
discuss the issue
of

sham contracting in the building and construction industry.

They were
as follows:



Canberra Roundtable on 25 March 2011



Sydney Roundtable on 28 March 2011



Melbourne Roundtable on 4 April 2011



Perth Roundtable on 14 April 2011



Brisbane Roundtable on 18 April 2011

1.68.

Across the five Roundtables there were 111 attendees.


There were 21 attendees in
Canberra, 20 in
Sydney
, 22 in Melbourne,
34 in Perth and 14 in B
risbane.

1.69.

The public
Roundtables

were recorded and transcri
bed. Attendees were notified of this fact
at the commencement of the Roundtable.

1.70.

Each Roundtable
was

facilitated by the ABCC, attended by
the ABC Commissioner
and
h
osted by an expert panel of invit
ed guests with expertise in workplace relations
or the
build
ing and construction industry.

1.71.

All interested
stakeholders

were encouraged to attend and participate in the Roundtable.


In order to attend a Roundtable event attendees were required to register
online.

They
were not required to have made a written submission in order to attend.



1.72.

Roundtable
participants

included relevant Federal
agencies
, State

departments
, employer
organisations and other peak bodies, individual employees and contractors, exper
ts in
accounting and taxation, labour researchers and members of the community.


W
hile
the
ACTU and its construction union affiliates

were invited to participate in this process they
refused to do so.

The media was also free to

attend all Roundtable event
s.

1.73.

The five Roundtables followed the same structure and process.


The ABC Commissioner
made an introductory statement after which time the panellists introduced themselves to
the attendees.

The ABCC facilitator then gave the attendees a general
overview

of the
proceedings and introduced the following three topics of discussion:



What
legislative
frameworks or legislative changes might be required to
address
sham contracting?



In undertaking its investigatory and litigation work what regulatory response
should the ABCC consider to tackle the

problem of sham contracting?



What tools does the industry need to
address
sham contracting?

1.74.

After this general introduction the ABCC facilitator would then separately introduce each
topic of discussion and make sugg
estions about factors relevant for consideration for each
topic.

The ABCC facilitator would then invite attendees to commence discussions on those
topics.

The attendees sat at tables with an ABCC table facilitator and members of the
expert panel.

For ta
ble discussions to commence the proceedings would be adjourned for
around
20

minutes to half an hour per topic.

Table discussions were not recorded.



Error! Unkno
wn document property name.


23

1.75.

At the conclusion of each table discussion the proceedings were resumed and the ABCC
facilitator

would as
k each table facilitator to summarise the discussions at their table.

Attendees who wished to make further statements then had an opportunity to do so.

At the
end of each Roundtable the ABCC facilitator gave a recap of the discussions on the topics
and
t
he ABC Commissioner
made a closing statement.

(v)

Post Roundtable consultation

1.76.

The ABCC has undertaken a range of additional

consultation activities since the conclusion
of the Roundtables. These activities have included:



presenting to the Australia Business
Register Advisory
(ABR)
Board;



consulting in relation to further research; and



conducting a pre
-
release consultation with key stakeholders to discuss the draft
of this
Report
.

Australian Business Register Advisory Board

1.77.

The ABR Advisory Board is a consulta
tive forum focused on progressing the future
direction for the ABR as a means of:



reducing compliance costs for the community in dealing with government; and



delivering the intended benefits of the Australian
B
usiness
N
umber (ABN) and
ABR.

1.78.

The ABC Commissioner attended the meeting of the Advisory Board held in Canberra on
T
hursday, 5 May 2011
.


1.79.

At the meeting, the ABC Commissioner provided the Advisory Board with an outline of his
role and

the scope
and progress
of the Inquiry.

1.80.

The ABC Co
mmissioner also
discussed with the Advisory Board some of the issues raised
during the course of the Inquiry, specifically that:



a key theme was that
g
overnment had to more actively engage in the industry,
through both education and compliance activities,

if it wants to reduce sham
contracting; and



there was also a strong call from industry for greater cross
-
agency coordination,
as an essential part of any solution.

1.81.

The ABC Commissioner
also

inform
ed

the Advisory Board that a key message from all
Roundtabl
es was that
:



this issue of sham contracting was claimed to be exacerbated by the ease with
which such workers are able to obtain ABNs; and



a significant number of industry participants indicated that ABNs are now seen by
many in the industry as a defacto r
egistration of an individual as conducting their
own business.

1.82.

The ABC Commissioner also took the opportunity to
t
hank
the representatives from both
the ABR and the

ATO for
the high quality of their contribution t
o the Roundtables

Further
r
esearch

1.83.

On 27 Ma
y 2011, the ABC Commissioner announced that the ABCC intend
s

to
consider

research designed to gain a fuller understanding of the extent and impact of sham
contracting on Australia’s building and construction industry.



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24

1.84.

In this announcement the ABC Commissio
ner stated:


I anticipated empirical evidence on the incidence and cause of sham contracting would
come out strongly
through the submission process.

Instead, submissions to the Inquiry called for reliable empirical information about the extent
of sham co
ntracting in the industry and what sectors of the industry it impacts.



A key theme at Roundtables and the written submissions was the need to validate any
proposed regulatory responses arising from the Inquiry with sound understanding of the
extent of th
e problem.



The research the ABCC is commissioning comes in response to
requests from industry participa
nts for more statistical data.

‘The quality of the submissions was high, but participants in the Inquiry primarily p
rovided
anecdotal information.

.

1.85.

Th
e ABCC’s original proposal for conducting this research was to undertake a three stage
approach consisting of:



developing a survey questionnaire and methodology;



conducting a data collection exercise in the form of telephone interviews of a
sample of build
ing industry employers, contractors and workers and providing an
online survey tool for industry participants; and



undertaking data analysis.

1.86.

Subsequent to the ABC Commissioner’s announcements, a team of academics
was

approached to assist in the first stag
e of this process
, being;

Associate Professors Anthony
Forsyth and Peter Gahan from Monash University and Associate Professor John Howe
from
T
he University of Melbourne.

1.87.

This team consented to assisting the ABCC by developing a draft questionnaire to
und
erpin the later data
collection

exercise. This questionnaire was subsequently
developed and a final version provided to the ABCC.

1.88.

During the questionnaire development, the ABCC made contact with a number of leading
universities to explore their interest
and capacity to assist in the latter stages of conducting
the data gathering and analysis exe
rcises. Amongst the universitie
s approached were:



Monash University and the University of Melbourne (through the original
academics identified above);



The
Workplace Research Centre at the University of Sydney; and



The Melbourne Institute of Applied Economic and Social Research at
T
he
University of Melbourne.

1.89.

In general, these institutions indicated that they did not have capacity to assist the ABCC
until
early
2012.

1.90.

The ABCC next began consultation with private research companies regarding undertaking
the data
collection exercise

that was required. This culminated in the ABCC requesting
quotes from five Australian research companies. The quotes were base
d on data
collection being conducted in a two part process:



Part one to consist of an online survey tool; and



Part two to consist of
tele
phone interviews conducted with a mix of employers,
contractors, and employees. A statistically significant number of i
nterviews was
specified of approximately 400 to 500 interviews.



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25

1.91.

The quotes that were subsequently received were in excess of $80,000. Under the
Commonwealth Procurement Guidelines contracts above this threshold are required to be
sourced through an open m
arket tender process. Accordingly, the ABCC was unable to
progress

contracts on the basis of the quotes received.

Pre
-
release consultation

1.92.

Prior to release of the
Report
, the ABC Commissioner sought to provide key stakeholders
with an opportunity to revie
w an exposure draft of its contents. Accordingly, on 27 October
2011, the ABC Commissioner convened a meeting of representatives of major employer
and employee industrial associations to review the exposure draft.

1.93.

The associations invited to attend this p
re
-
release consultation were:



Australian Industry Group;



Australian Chamber of Commerce and Industry;



Housing Industry Association;



Master Builders Association;



Australian Council of Trade Unions;



Australian Workers Union; and



Construction, Forestry, Minin
g and Energy Union
.

1.94.

Representatives of all four employer representative associations accepted this opportunity
and attended the meeting held on 27 October 2011.

1.95.

At this meeting the attendees were provided with a copy of the exposure draft and an
opportun
ity to discuss any inaccuracies or other issues they believed were contained within
the
Report
. The meeting was conducted as an open forum of all attendees.

1.96.

Unfortunately, the employee representatives invited to attend the pre
-
release consultation
did not

respond to the invitation.

(vi)

The position of the ACTU and the construction unions

1.97.

On 29 November 2010, the ABC Commissioner wrote to the Secretary of the ACTU, Mr
Jeff Lawrence, to discuss the then proposed
S
ham
C
ontracting Inquiry and the more
general plan

for the future regulatory work of the ABCC. A response was sent by the
ACTU in a letter dated 23 December 2010 indicating that the ABC Commissioner was well
aware of the ACTU and construction unions' opposition to the ABCC and noting that his
appointment

did not change anything. Thus the ACTU declined
to participate in the
proposed R
oundtable.

1.98.

As noted when the ABC Commissioner wrote back on 23 December 2010 it was an
opportunity missed to present the views of the union movement on an important issue,
even if it did not support the ongoing existence of the ABCC. Given the Terms of
Reference and opportunities presented by the Roundtables it was a genuine offer on the
ABC Commissioner's behalf.

1.99.

On 1 August 2011, the ABC Commissioner in his speech to the
19th Annual Labour Law
Conference in Sydney reiterated his offer to the ACTU and the construction unions to
engage with the Inquiry

(see
Appendix 3
)

1.100.

On 13 October 2011 the ABC Commissioner again wrote to the ACTU, the CFMEU and the
AWU to invite them to pa
rticipate in consultation over an exposure draft of this Report.
Those invitations were ignored.

(vii)

Other responses to sham contracting



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26

1.101.

Unconnected with the Inquiry, one of the Government's proposed budget measures
announced on 2 May 2011 is a plan to intro
duce measures to improve compliance with
contractors' taxation obligations. In particular
,

businesses in the building and construction
industry will be required to report to the ATO annually on payments made to contractors,
together with the relevant cont
ractor's ABN
.

1.102.

Those measures may go some way to remedy the disquiet concerning the misuse of ABNs
documented in this Report.

1.103.

On 30 May 2011 the Assistant Treasurer released a consultation paper on the design of
the reporting regime for taxable payments to
contractors in the building and construction
industry.

1.104.

As the ABC Commissioner has consistently made clear, matters of tax policy were not the
subject matter of the Inquiry. No recommendation is made in relation to them.

1.105.

In addition, on 11 November 2011
, the Fair Work Ombudsman released its report:
Sham
contracting and the misclassification of workers in the cleaning services, hair and beauty
and call centre industries: Report on the preliminary outcomes of the Fair Work
Ombudsman Sham Contracting Operat
ional Intervention.
18

1.106.

The FWO report relates to a series of audits it commenced in relation to 102 trading
enterprises to assess the extent to which workers engaged
as

independent contract
or
s
should
, at law,

more properly have been
engaged as

employees. This series of audits
commenced in April 2011 and focused on the cleaning services, hair and beauty, and call
centre industries.

1.107.

An additional group of enterprises was selected for audit based on findings of earlier FWO
investigations which fo
und they had previously misclassified employees as independent
contractors. These enterprises, representing a variety of industries, had received a formal
Letter of Caution that advised them to change their worker engagement practices.

1.108.

The FWO report’s co
nclusion w
as

that 21 of the 102 enterprises audited were assessed as
having misclassified employees as independent contractors and one third of those were
assessed as either knowingly or recklessly having done so
.


According to the
Report
, these
seven ente
rprises are currently being assessed by the FWO for civil penalty litigation
.

1.109.

The methodology used by the FWO in conducting its series of audits aligns closely with the
current practices used by ABCC. In particular, it is evident from the
Report

that the
FWO
shares the ABCC’s belief that a strong educative program is necessary to underpin any
attempts to eradicate sham contracting.

1.110.

Similarly, the ABCC and the FWO
both
appear to have adopted the
a
pproach

of

provid
ing

employers which
are

believe
d to

have con
travened s 357(1) with information on when a
worker will be considered an employee and independent contractor

and encouraging t
he
employer
to

then regularise
the
employment arrangements.

1.111.

Such employers are then subject to a follow
-
up audit at some later
date. Where the
practices that initially led to the adverse finding have not changed, the ABCC and FWO can
then consider enforcement action

relying on the earlier
provision of
advice

and education to
reduce
the

employer's ability to rely on the defence pr
ovide
d

for in s 357(2). In the FWO
Report
,

seven

of the 102 audits it conducted
appear to have sought to rely on this
deliberate approach
.






18


Fair Work Ombudsman, R
eport on the preliminary outcomes of the Fair Work Ombudsman Sham Contracting
Operational Intervention
, see
www.fairwork.gov.au





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27

2.

SUMMARY OF RECOMMENDATIONS



Recommendation 1:


That the ABCC
coordinate a more integrated whole of government strategy aimed at
eliminating sham contracting in the building and construction industry through
strengthen
ing

its relationship
s with:

o

the
ATO

in order to
:



more effectively refer instances of worker
-
driven s
ham
contracting to the
ATO
; and



to obtain aggregate data of the outcomes of
ATO

compliance
activity that arises from such referrals.

o

Australian Securities and Investments Commission

(ASIC)
in order to better
enable ASIC to undertake compliance activity in

relation to phoenix activity in
the building and construction industry
; and

o

Department of Immigration and Citizenship
(DIAC)
in order to better identify
and protect vulnerable migrant workers from being involved in sham
contracting
.



Recommendation 2:


That the ABCC conduct research to build an accurate picture of sham contracting in the
building and construction industry.


This research should

be designed to address the following questions:



How wide spread is the problem of sham contracting in the build
ing and construction
industry?



Are there any geographic, worker classification or industry sector factors that increase
the likelihood of sham contracting or in relation to which sham contracting is more
prevalent?



For those workers engaged through sham
contracting arrangements, were the
arrangements initiated by the employer or the worker?



What do employers and workers perceive as the benefits of being engaged as a worker,
rather than an employee?



Are workers aware of the entitlements under the Fair Work

system which they forgo by
working as a contractor?

An appropriate researcher to undertake the research should be determined through an open
market process to ensure the widest possible range of entities can tender for this project.

The request for tender should also not prescribe a particular survey methodology, other
than to ensure that the survey is conducted using a random
-
sample of employers,
contractors and employees and will result in
a
statistically valid estimate of the preva
lence
of sham contracting, including at a disaggregated level.

The results of the research would be shared with other government departments and made


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28

public.




Recommendation 3:


That the ABCC undertake education activities

(including in partnership with

key
industry stakeholders and the ATO)

to
specifically
inform employers and employees in
the building and construction industry regarding the appropriate use of Australian
Business Numbers.




Recommendation
4
:


That
, after the completion of the research

identified in Recommendation 2,

the ABC
Commissioner convene a high level social partner working group to examine
the outcomes
of the research, including whether

legislative amendments to
eliminate
sham contracting in
the building and construction