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ABCC report on sham contracting

An issue to be addressed but not a major problem
ICA comment on the report

3 December 2011

The Australian Building and Construction Commissioner released the Report of his self-initiated inquiry into Sham Contracting on 29 November 2011. The Report found that 'sham contracting' is not rife in the building industry (as claimed by the construction union, the CFMEU). He also rejected proposals for radical action such as changes to legislation, opting instead for a range of measures to improve existing education and administrative arrangements.

The Report's Recommendations represent a very substantial retreat from the positions canvassed in the Commissioner's Discussion Paper issued last year, and are a vindication of arguments that 'sham contracting' is real, needs to be addressed (as it is being) but is not a major problem.

The Report also fails to provide any justification for the concerted attacks on contracting and small business by the ACTU, construction unions and some politicians and academics over the last 12 months. In particular, the inquiry found that "the conclusions reached by the CFMEU are not reliable" (Par 4.223).

In summary, the Recommendations are that the ABCC:
  • develop a Fair Work Contractor Statement Ð containing information on the common law test for employment and the consequences of being engaged as a contractor rather than an employee Ð which would be voluntarily provided to independent contractors before engagement;
  • boost compliance by using tools available under the Fair Work Act, such as compliance notices and enforceable undertakings, using research findings to conduct targeted compliance campaigns and review the results of the audit of the construction and finishing trades, which is underway now;
  • develop a sham contracting "guidance note" for the industry, available to be handed out by those engaging contractors;
  • investigate further an MBA proposal for a voluntary 'negative licensing' system for independent contractors, backed by a solicitor's certificate;
  • reject proposals for developing a labour hire code of conduct, a concept of joint employment, or a new legal category of "dependent contractors";
  • conduct research to develop an "accurate picture" of sham contracting;
  • convene a roundtable after the research has been completed to consider the effectiveness of legislative amendments to eliminate sham contracting;
  • undertake education activities to boost understanding among employees and employers of the appropriate use of ABNs; and
  • review its National Code activities to ensure it devotes enough resources to identifying sham contracting activity.
Many of the Commissioner's recommendations, including for further research by the ABCC, have doubtful relevance if the ABCC is to be abolished, as proposed by the Gillard Government in legislation currently before the Senate. This is coupled with the fact that this additional research will more likely than not require extra funding for the agency, something that is far from guaranteed given the Government's current budgetary climate.

What is important is what the Report does not recommend. This includes:
  • No assertion is made in the Report that sham contracting is 'rife' or even 'widespread'. The ABCC accepts that present information does not permit such a conclusion;
  • CFMEU claims made in its 'Race to the Bottom' publication, are said in the Report to be "unreliable" and its proposals were rejected;
  • There is no discussion about, and no findings are made, as to APSI tax definitions, or tax avoidance by contractors;
  • Academic proposals for new definitions of employment are comprehensively rejected;
  • The current legal definition in the Fair Work Act is accepted as the correct approach to the issue, and proposed wider definitions of sham contractors as workers who on moral or social grounds "should be treated as employees" are expressly rejected by the ABCC;
  • Union and academic attacks on the labour hire industry are dismissed as unjustified.
All in all, the Report contains very little of the exaggerated and inaccurate material that was being circulated in late 2010 and earlier in 2011. It's a useful public rebuttal to 'hysterical' agitation about "sham contracting" and "precarious employment".

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