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ABCC Commissioner questioned in Senate about ICA's concerns over the sham contracting inquiry

5 March 2011

Below are extracts from the Senate Hansard detailing questioning put to the ABCC Commissioner. It gives an insight into the inquiry process and attitudes towards self-employed people. Our criticisms of the inquiry process are here.

From: Proof Committee Hansard
Extracts From Page EEWR 98 and on

Senator CAMERON---Are you aware of the Independent Contractors Australia website?
Mr Johns---Yes, I am.
Senator CAMERON---I thought you might be. I thought it might have come up on your radar. They have an article headed 'Sham contracts' and they have a warning, 'ABCC and shams'. They are warning people about becoming formally involved. Have you had any discussions with Independent Contractors in relation to this article?
Mr Johns---I have not.
Senator ABETZ---Senator, are they right, these suggestions? Did you come forward with an allegation---
Senator CAMERON---I am going to come to all of that.
Senator ABETZ---All right.
Senator CAMERON---I am happy that you asked the question.
Senator ABETZ---No, that is fine.
Senator CAMERON---They said they are highly supportive of the ABCC and then, having a real go at you, they said:
... the structure, processes and assumptions underpinning the approach of the inquiry are deeply flawed and that they create significant risks ...
Have you assessed whether that is the case?
Mr Johns---I announced the architecture of the roundtable and inquiry on 19 November. In announcing that I did make the point that I had very much based the process and the architecture on the royal commission that was conducted into the bushfires in Victoria. The process I put in place has great integrity and I stand by it.
Senator CAMERON---Is there protection from litigation of participants?
Mr Johns---No. If you look at, for example, the experience of the Cole royal commission, people who gave evidence before that were not granted a general immunity from prosecution. I indicated very openly, when I announced the architecture on 19 November, that, if people gave evidence or gave my office information about the existence of sham contracting, it might lead to that becoming an investigation and it might lead to prosecution. If people wanted to approach me and say, 'I have information to give you and I'd like an immunity from prosecution,' that is something that could be discussed.
If you look at our litigation policy, you will see that we talk about assistance being provided to the regulator as a consideration in determining whether or not to commence proceedings against someone. In any case, it would be possible in the course of an investigation for me to conduct a section 52 examination. As a right, when I conduct those investigations, they provide a useful immunity to people who give that information.
Senator CAMERON---You have looked at this website. Do you know that they are using photographs of Joe McCarthy?
Mr Johns---Senator, can I just say to you---
Senator CAMERON---McCarthyism.
Mr Johns---that I did look at the article that I assume you are looking at. I did not recognise the
Senator CAMERON---That is McCarthy. That is the anticommunist hearings in the US. For someone who claims that they are a respectable organisation, Independent Contractors Australia, to put that up is quite a challenge for the ABCC, isn't it?
Mr Johns---As I say, I reject the criticism of the integrity of the process. I also note that there was a criticism about the obligations that people who submit to the website are meant to sign up to and there was a criticism of my disclaimers. I note that the disclaimer on the website of Independent Contractors Australia is as significant or restrictive as the one that is on my website.


Senator CAMERON---Mr Johns, I will finish on this. Can you take on notice to come back to the committee or to me in relation to the allegations that have been made about the process that you have put in place---that is, no protection from litigation of participants; open-ended and unclear inquiry rules leading to potential risk exposure; silencing online debate of participants; and (a) the inquiry lacks a clear focus; (b) the inquiry has the appearance of being assumption driven rather than fact driven; (c) pretence of narrow investigation but actually very broad; and (d) the inquiry is looking at issues that are beyond ABCC's jurisdictional authority. I am going to leave it at that and ask you to come back to us in terms of those very serious allegations that have been made in relation to the inquiry. Thanks.


Mr Johns---Yes, but the Independent Contractors Act in that regard amended the then Workplace Relations Act and put the sham contracting aspects into the Workplace Relations Act, which has been replicated in the Fair Work Act. So the sham contracting arrangements sit exclusively within the Fair Work Act and not within the Independent Contractors Act. If you like, that aspect of the Independent Contractors Act in 2006 has done its work because it amended the then Workplace Relations Act.
Senator ABETZ---Yes, with those provisions.
Mr Johns---Yes.
Senator ABETZ---What is the deficiency in the provisions that were incorporated in the Independent Contractors Act which are now in the Fair Work Act?
Mr Johns---I am conducting an inquiry into these matters and I am asking people to make submissions to me. If they think that there are deficiencies in that provision then they should make that submission. I have not prejudged my view about the operation of section 357 [sham contracting provisions] of the Fair Work Act---it would be improper for me to do so---but if people think that section 357 is deficient then they should make those submissions and I will consider them in the course of the inquiry.
Senator ABETZ---In relation to your website and in relation to this sham contracting inquiry, is it correct that the ABCC can change any of the terms of the agreement at any time at its sole discretion and that the participants agree to be bound by the changed terms. That is on your website?
Mr Johns---Yes. It is in relation to the agreement to make a submission in terms of the IT arrangements and so forth. It deals with that. It does not refer to or relate to the terms of reference of the inquiry and I think that is the misunderstanding in the criticism that I have seen.
Senator ABETZ---So what you might do, or any comfort you might provide to somebody, cannot be changed halfway through?
Mr Johns---For an example, one of the conditions of making a submission is that you will not breach copyright by using the submissions of other people. What that contractual term is saying is that I might make a decision that, okay, people can use it, and one of the criticisms of me in that article is that I say it is a term of the agreement that you cannot use the submissions of other people in the public domain. I could change that condition, I guess. I do not plan to. But it is actually no different, as I said earlier, to the disclaimer that the independent contractors association have on their own website.
Senator ABETZ---Yes, but anything I might say to them may not necessarily lead to a situation where the independent contractors have a legislative power to prosecute me.
Mr Johns---Yes, I accept that.
Senator ABETZ---Whereas you do. Therefore somebody might provide some information or something and then later on you change the rules on them and thereby create a potential unknown liability for them.
Mr Johns---No, sorry, I do not accept that. The terms and conditions that the association is referring to are the terms and conditions between the people who submit and the basis upon which they put in their submission. I have not indicated that people get an immunity, so I could never remove it. I cannot see the loss or the concern. I just do not get it.
Senator ABETZ---How many submissions have you had to date?
Mr Johns---We have not had any so far. The closing is 7 March.
Senator ABETZ---When did it open?
Mr Johns---The public website, I think, opened on 17 January. It was around that time.
Senator ABETZ---So we have been going for 50 per cent of the time of the inquiry without a submission.
Mr Johns---Yes, and in the interim I have been meeting with interested parties to talk about their submissions. I am meeting with one large stakeholder group on 1 March. They are finalising their submission after that in order to meet the deadline of 7 March, I have been told by them.
Senator ABETZ---So you are now actively out there in the marketplace seeking submissions because they are not seemingly coming in on an overwhelming basis? There does not seem to be a huge community demand despite the publicity that has been generated by our new public affairs adviser?
Mr Johns---It is not that I am newly out there meeting with people about this. I have been having meetings since 22 December with interested parties who have said, 'Can we come and have a conversation with you first before we put in our submission?' and I have said, 'Yes, of course you can.'
Senator ABETZ---Who are those interested parties, out of interest?
Mr Johns---The party that I met with on 22 December is the RCSA---the Recruitment and Consulting Services Association. I met with their workplace relations working group.
Senator ABETZ---Did you approach them or did they approach you?
Mr Johns---They approached me. I have had meetings with the MBAs in all of the states except Tasmania.
Senator ABETZ---Did they seek those meetings to discuss your inquiry or did you seek the meetings, or did it just come up?
Mr Johns---It just came up in the meeting.
Senator ABETZ---So it was not specific.
Mr Johns---You will appreciate that, since taking the position in October, I have been trying to meet with a whole range of stakeholder groups and one of the things that we talk about is---
Senator ABETZ---As you should, so there is no criticism. If I were to put a submission up, would that be publicly available on the website?
Mr Johns---Yes.
Senator ABETZ---So if I were to say on that website that Joe Bloggs is a bad egg, could Joe Bloggs then,on the website, quote what is said about him and then defend himself without breaching your copyright rules?
Mr Johns---Can I just explain the process? Submissions are put in. In circumstances where someone in their submission makes a personal allegation of unlawfulness, we would excise that from the report and it would be referred to our investigation unit for them to investigate, or we would approach the submitter and say, 'Wouldn't it be better that you put this in the form of a formal complaint?' Our concern is obviously that people should not be defamed and so forth, so we would excise those bits from the report.
Senator ABETZ---To participate in this inquiry you have to answer 11 questions.
Mr Johns---You do not have to; we invite you to answer them.
Senator ABETZ---The suggestion has been made that all people must answer those 11 questions.
Mr Johns---No, that is not true.
Senator ABETZ---That is not right? All right, thank you. Did you consult with Treasury or the Australian Taxation Office before the release of your discussion paper?
Mr Johns---No, I did not.
Senator ABETZ---Will you feel in any way constrained from making recommendations at the conclusion of the inquiry about tax arrangements applying to independent contractors?
Mr Johns---It is not my jurisdiction to make suggestions about the Income Tax Assessment Act.
Senator ABETZ---But have you made any comment in relation---
Mr Johns---The discussion paper does not touch upon tax laws.
Senator ABETZ---At all?
Mr Johns---One of the problems in the sham contracting area is that there are different rules for tax, different rules for fair work---
Senator ABETZ---Exactly!
Mr Johns---different rules for occupational health and safety, so it refers to the fact that there are different rules, and people might want to make submissions about that being problematic.
Senator ABETZ---So your inquiry will potentially be canvassing the issues of taxation?
Mr Johns---I will not be making any recommendations about changes to tax laws. The highest I might go is to say it would be more desirable for there to be a single test that reduces the regulatory burden on people who have to try and comply with these laws.
Senator ABETZ---It sounds as though you might be already drafting some conclusions.
Mr Johns---Not at all.
Senator ABETZ---Let's hope that is not the case, then. But you would accept the unions have had a strong and long-held dislike of independent contracting and labour hire?
Mr Johns---Yes.
Senator ABETZ---Senator Cameron would be an example par excellence of that.
Senator Chris Evans---Senator, there is a difference between one's view on contracting and one's view on sham contracting. I would have thought all of us had a concern about sham contracting.
Senator ABETZ---Absolutely! And that is why I asked whether there was a strong dislike, amongst unions, of independent contracting and labour hire, and Mr Johns has indicated that that is the case and that is the experience of many of us. That is why, if Senator CAMERON and others had their way, basically any independent contractor would be seen as engaged in sham contracting. I will not go there.


Mr Johns---Can I just tie up on that, Senator? I do make this very point in the discussion paper. I draw the distinction between sham contracting and legitimate contracting, with which there is absolutely no issue, and the fact that the on-hire of employees through labour hire is not, by definition, sham contracting.
Senator ABETZ---Is independent contracting in the building and construction sector different from other industries?
Mr Johns---There is certainly a higher proportion of it.
Senator ABETZ---But the nature of it?
Mr Johns---I don't understand.
Senator ABETZ---Not the incidence of it but the qualitative nature of the independent contracting.
Mr Johns---The project nature of work in the building and construction industry means that it does lend itself more to contracting arrangements. That probably explains the higher incidence.
Senator ABETZ---Sham contracting is a contravention of the law. Those engaged in it should be prosecuted. Are you saying that there is a failure with the current legislative regime?
Mr Johns---I am conducting an inquiry into these matters. As I said earlier, I have not prejudged whether or not section 357 is effective.
Senator ABETZ---So why did you decide on sham contracting for a special inquiry as opposed to a host of other issues that you could have inquired into?
Mr Johns---Because when I looked at the work patterns or the incidence of complaints and claims coming into the ABCC, there was an increase in sham contracting. This is not something that I have started. There were a number of sham contracting matters that were being investigated. The first sham contracting litigation commenced by the ABCC was commenced by the former commissioner. When I looked at the figures, they told me that there was an increasing incidence in the complaints. Certainly the evidence before me was that it was more significantly involving vulnerable workers in particular sectors. I thought it was important that we try and come to a real fix for the issue of sham contracting, which not only hurts workers but decent employers, tax equity and those types of issues.
Senator ABETZ---Tax again is coming up.
Mr Johns---Tax equity in the sense that if people are engaged in sham contracting---if they are the worker in that arrangement---they might have opportunities to minimise their tax that I as an ordinary pay-as-you-go employee do not have, so the tax burden on me is higher than the tax burden on someone who is involved in these arrangements. That is the tax equity issue.
Senator ABETZ---And so, as a result of your inquiry, it is quite likely that something might happen in relation to tax issues. We have canvassed that before. Is the report in the Australian Financial Review of 8 February 2011 correct when it says on page 60:
that is, yourself---
is alleged to have said, 'How it can be suggested that a labour-only form worker or a labour-only plasterer is running a business of their own account and is an independent contractor is beyond me.'
Mr Johns---I did say that.
Senator ABETZ---How many Australians are so engaged? Do you know?
Mr Johns---I do not know. When I look at the matters that we are investigating, when I look at the workers in those matters, they are not people genuinely running a business on their own account. They turn up for work, they are directed in how they perform their work. All the indicia of the employer-employee relationship applies to them but there is a piece of paper that says they are an independent contractor. The incidents that I see are particularly in these types of areas of the finishing trades and formwork, where the most vulnerable workers are being required to go and get ABN numbers and are really being exploited. The question I pose is, how can a labour-only form worker be said to be running a business of their own account? That is the test for whether or not they are an independent contractor. That is the test applied by the High Court and that is the inquiry we have to make.
Senator ABETZ---That is what the law currently requires.
Mr Johns---Yes.
Senator ABETZ---I am still wondering what needs to be tightened up or changed in the current law. But time is getting away, so can I ask you about the 11 questions about sham contracting. Does your website tell us:
The following 11 questions about sham contracting are required to be answered by each participant in the sham contracting inquiry.
Mr Johns---I do not have the website in front of me. It was my understanding that people were invited to answer the questions. If the website says they have to, then that is not my understanding of what we had intended.
Senator ABETZ---What I have in front of me is what I have just read to you, with the word 'required'. If I am required to do something, then that is a must, isn't it?
Mr Johns---I have to accept that. That will be changed, if that is the case.
Senator ABETZ---Thank you for that. So you have got a term of reference in the sham contracting inquiry
and it tells us---this is the discussion paper of December 2010 on pages 1 and 2: 1.1 Terms of reference The matters that will be considered in this inquiry include the following:
And it is the first bullet point on the top of page 2: ¥ The evasion by workers in the building and construction industry of taxation and other responsibilities ...
That is a term of reference, but you are not going to discuss anything in relation to taxation in your findings.
Mr Johns---I am not going to make recommendations for changes to tax laws. Senator ABETZ---So in relation to---
Senator Chris Evans---Senator Abetz, just so I can help: it seems to me that everyone understands that one of the motivations for sham contracting is avoidance of tax. I do not think that is disputed. I think what Mr Johns is saying is that his inquiry is focused on the things within his remit. Certainly this government is pursuing an examination of what we can do in terms of tax laws to strengthen avoidance and stamp out sham contracting. You keep referring to taxation matters: yes, they are part of the debate, but I think Mr Johns has made it clear that he is not intending to recommend in that sphere because that is outside of his area of expertise and responsibilities. But there is no doubt that you cannot have a discussion about sham contracting without mentioning the word 'tax', because that is one of the big incentives for people to enter into them.
Senator ABETZ---That is fine. But it is up to Mr Johns as to which way this is going to be dealt with. Taxation, you are now saying, is front and centre of an inquiry into sham contracting, so that, I think, highlights the concern that I was expressing. But I do not want to engage in---
Senator Chris Evans---You have attempted to verbal witnesses and now you attempt to verbal me. What I said is on the Hansard.
Senator ABETZ---That is right.
Senator Chris Evans---What you said does not represent what I said.
Senator ABETZ---Yes, and the Hansard will disclose that. You indicated before that labour hire arrangements were appropriate, Mr Johns?
Mr Johns---What I said was that the on-hire of labour employees is, by definition, not sham contracting.
Senator ABETZ---That is labour hire? Is that right?
Mr Johns---No, because with labour hire, you could have labour hire on-hire employees or you could have labour hire on-hire of contractors or subcontractors. In relation to the on-hire of subcontractors, there might be sham contracting there, but the point I make is that the on-hire of employees through labour hire is, by definition, not sham contracting. There are two aspects of it.
Senator ABETZ---Is competition a good thing in the building and construction sector, do you think?
Mr Johns---I think competition is a good thing in all economic sectors.
Senator ABETZ---Excellent. So why do we talk about 'competition' and 'undercutting' in the same breath in the terms of reference?
Mr Johns---If the competition is based on an unfair or a lower cost base because you are engaged in sham contracting, then it is bad competition. The concern I have is this---
Senator ABETZ---Yes. But what is the matter with the current of definition of 'sham contracting'? We already have a definition that is well established in law, so what is the problem with the current definition? That is what I am trying to get at.
Mr Johns---The legislation actually does not have a definition. The legislation refers to the common law.
Senator ABETZ---That is right, and it is well defined in common law, is it not?
Mr Johns---The stakeholders that I speak to say that they struggle in working their way through the list of indicia to work out whether someone is an employee or an independent contractor.
Senator ABETZ---Who are those stakeholders?
Mr Johns---Many people. For example, I spoke at the annual general meeting of the Master Plumbers Association last Thursday and, in the course of talking about sham contracting, they said to me that they do not understand the rules. They said to me, 'Yeah, and we know that when we go out to compete who down the road is engaged in this practice and winning the jobs because they're not paying the right rates.' These are hard-working, decent contractors who are suffering a competitive disadvantage because of people who are doing the wrong thing and we ought to support them to do the right thing.

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