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Education and Employment References Committee
25/07/2018
Exploitation of cleaners working in retail chains

HARDY, Dr Tess, Private capacity

ACTING CHAIR: Welcome. I understand that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you.

Dr Hardy : It has.

ACTING CHAIR: I understand, Dr Hardy, that there was a little bit of confusion about when you should be appearing and I also understand that you have some sickness at home. So, if you need to stop at any time, just do that and we will organise another time to continue our questioning, if that's okay with you.

Dr Hardy : I appreciate that. I apologise for the confusion.

ACTING CHAIR: That's okay. I do reiterate that if you need to stop to look after family we understand and you can come back any time. Do you have any opening remarks?

Dr Hardy : I don't have an opening statement today.

ACTING CHAIR: You probably haven't heard any of the evidence, but Professor Andrew Stewart previously gave evidence—and there is a joint submission from yourself and Dr Stewart. Is that correct?

Dr Hardy : That's right, yes.

ACTING CHAIR: You've done quite a lot of research into this area of contract payments and the change in circumstance from what used to be a relationship between an individual and an employer. That is changing, isn't it?

Dr Hardy : It is. There is evidence to suggest that it is very prevalent in retail cleaning, but it is certainly not confined to that sector. We're seeing all different forms of fragmentation of the work relationship happening across the labour market. But it is particularly concerning in low-wage sectors, such as cleaning, and a number of other—

ACTING CHAIR: Dr Hardy, the line is breaking down a little bit. If you're not talking directly into the telephone, could you do that, because we're getting real break-up.

Dr Hardy : Okay. The fragmentation of the work relationship is something that is concerning for Australian labour lawyers and regulators—and policymakers, for that matter—because it threatens the integrity of the employment law framework, because much of the Fair Work Act is premised on the assumption that there is a binary employment relationship in place, that there are two main parties to the contract—and frequently we're seeing that that's not the case, that there are a number of entities above and beyond the employer that are really influencing the performance of work and benefiting from the labour. And they are largely insulated from any issues that occur at the workplace. If an employee is underpaid, their main recourse is against the legal employer at common law, but frequently we are seeing—there is just case after case brought by the Fair Work Ombudsman and the unions, where, either before the proceedings commence or once they have ensued, the direct employer goes into liquidation, insolvency, or is deregistered, so the employer no longer exists or there are no assets available with which the worker can seek redress. There are no penalties that can be imposed easily on that entity, although, of course, accessorial liability provisions allow for proceedings to continue against the directors.

ACTING CHAIR: I've had a look at your joint submission but also the paper that you produced, 'Good Call: Extending Liability for Employment Contraventions beyond the Direct Employer'. In that paper, you talk about the limitations of the current regulatory regime and the accessorial liability issue. Do you want to take us to your concerns as to the limitations of the current law on accessorial liability?

Dr Hardy : Accessorial liability is really shorthand for section 550 of the Fair Work Act. That provision was originally derived from the criminal law, but we saw it embedded within the trade practices legislation, and then it's been borrowed again and implanted into the Fair Work Act. It is a concept that didn't really originate in the employment context, and I think that that reflects some of the problems that we now have in applying it in this particular regulatory sphere. In essence, it allows proceedings to be brought against a person who is involved in the contravention of another. To be involved in that contravention, you need to show that that person is knowingly concerned in the contravention. There is some level of dispute about what needs to be shown, but the bar has been set relatively high. Generally speaking, the cases establish that you need to prove that the person had actual knowledge of the essential elements of the contravention. To prove actual knowledge on the part of directors in a small business is fairly straightforward, because they are the controlling mind of the employer entity. So it's a fairly unproblematic process from an evidentiary point of view. It becomes a lot more complicated and a lot more complex when you are seeking to prove that entities above the direct employer, particularly entities that might be two or three or four tiers above the direct employer, had actual knowledge of the essential elements of the contravention. Some courts have taken a fairly narrow view and may have required knowledge of whether or not, for example, the employee was casual, whether or not they were young and therefore junior rates applied et cetera. It's unusual for an entity that is higher up in the chain to have that level of detailed knowledge about the working conditions, but that's not to say that the decisions that that firm—what I call the lead firm—has taken are irrelevant to what's happening at the bottom tier of the chain, because often it's the price that they've set for the head contract which has driven a lot of the behaviour that you're seeing at the bottom of the supply chain or the franchise network or whatever it is. So one of the issues is evidentiary.

From a regulatory point of view—and this is an argument that I've set out more fully in my written pieces—the way in which the accessorial liability provisions are framed can lead to what I call counterproductive liability avoidance. The problem is that even if the lead firm think, 'Oh, there might be a risk that we will be found liable as an accessory,' what they would do in order to decrease the legal risk, rather than trying to address the issues that are occurring at the bottom of the chain by, for example, undertaking monitoring or increasing the contract price, is to try to know less. So they try to remove themselves or distance themselves from what's happening at the workplace. So what you produce is really the least desirable outcome from a regulatory point of view.

ACTING CHAIR: The changes to 550 that have taken place recently apply to franchisors, but they don't apply to a contract approach, do they?

Dr Hardy : No. That's quite right. Section 558B, which is the new provision of the Fair Work Act, applies to responsible franchisor entities, and there are equivalent provision that apply to holding companies in respect of their subsidiary companies. So there are two distinct organisational forms that are covered by these extended liability provisions. But, of course, that leaves out labour hire. It leaves out supply chains. It leaves out contracting chains in the cleaning industry. It's relatively surprising in some ways that labour hire wasn't captured, because it was identified as an issue in the media, in other Senate inquiries and in the Baiada Fair Work Ombudsman inquiry. There was already very substantial evidence that labour hire and contracting chains were a problem, yet section 558B is limited to franchise networks and holding companies, largely in response, obviously, to the public furore that followed the 7-Eleven scandal.

ACTING CHAIR: Isn't there now some disconnect where, just depending on the form of a contractual relationship or relationship such as a franchise, different rules and different legislation apply?

Dr Hardy : Yes, I think there is. I actually held a workshop last week seeking to bring together a whole range of scholars to think about what would be a more holistic and effective regulatory response to some of the similar issues that we're seeing in these various organisational forms in business networks, because at the moment we've got a patchwork response in a way. We've got extended liability for franchise networks. We've got state labour hire licensing schemes popping up to address some of the issues that we see in labour hire arrangements. Supply chains are largely left unregulated in the employment sphere, but, of course, you've got other forms of regulation like the Food and Grocery Code of Conduct or the Horticulture Code of Conduct, which is administered by the ACCC, which is a separate form of regulation which is designed to address some of the power asymmetries that we see in those supply chains. But certainly in the employment context it is a little ad hoc and, I think, a reflection of the fact that parliament has responded to the issues that have been identified in this enforcement crisis but not necessarily taken a step back and said: 'Okay, there are issues happening across the labour market. What would be the most effective regulatory response? How do we address some of these counterproductive behaviours? How do we ensure that workers at the bottom of these chains aren't exposed or vulnerable to exploitation?'

ACTING CHAIR: In your joint submission, on page 3, you've put forward some proposals that would, I suppose, lower the bar for accessorial liability. Can you just take us to what you're proposing there?

Dr Hardy : Sure. It's really taking up some of the elements of section 550 and some of the elements of section 558B. What we're seeking to do is broaden the scope of application of those extended liability provisions to a range of different organisational forms and to both corporate and natural persons. To that extent, it reflects the existing provisions in section 550, which also apply to a person involved in a contravention. It is not limited to any particular form of corporation and it's not limited to corporations as such. That's quite different to section 558B. In a sense, it's a neater provision. It's somewhat clunky in section 558B because of the separation between entity and officer and then separate provisions for accessorial liability, so the questions are then raised about how these provisions all interact with each other. So that's one way which we've broadened the existing provisions.

The other, of course, is that, rather than relying only on actual knowledge, the provision would apply where knowledge could be proved on an objective basis. This is certainly something that derives from section 558B. That's a very important provision. It's an important way in which to address some of the limitations of section 550 that I outlined earlier. The explanatory memorandum to the Fair Work Amendment (Protecting Vulnerable Workers) Act makes that clear. So it's a really important step forward, and it was an important step taken by section 558B, but Professor Stewart and I believe that it shouldn't be a step only taken in respect of franchise networks and holding companies.

Then, of course, we've got the statutory defence where a person might be proved to have the requisite knowledge. They can still avoid liability if they can show that they've taken reasonable steps to prevent the relevant contravention. The idea behind this is to encourage the types of regulatory behaviour that we want to see taken by these lead firms. So the more they do to ensure that workers throughout their networks or throughout their supply chains are being paid properly, the more likely it is that they will not be held liable for any contraventions that take place. If they can show that they have undertaken monitoring and that they've set the contract price at a level which would allow for workers to be lawfully paid, then it's likely to be the case that the court would say: 'That is sufficient. You are not held liable in those particular circumstances.' That's certainly again reflective of the structure of section 558B. We've, in a sense, tried to take the best parts of section 550 and the best parts of section 558B and merge them and then we sought to broaden their application.

ACTING CHAIR: Are you aware of any overseas jurisdictions that have legislated to try and deal with the changing nature of the employment relationship?

Dr Hardy : There's a range of different responses in the UK, in California—

ACTING CHAIR: Could I interrupt for one second. We've had a request for filming. Is there any objection from the committee? No? So filming is okay. Sorry, Dr Hardy.

Dr Hardy : Okay. For example, in Ontario recently they changed the definition of 'related employer' so that a variety of different entities that are connected to the employer in some way may be held liable for underpayment. In the States, they've got a joint employment concept, which is quite distinct from what we have here, but that has been used in various cases to make lead firms liable for contraventions that have taken place—for example, in labour hire arrangements. That's an old provision, but it's being interpreted in a way that is expanding its application in some circumstances. It's highly controversial and obviously, under the Trump administration, there have been moves to narrow the interpretation of that provision, so it remains somewhat unsettled. Many of these examples are set out in pieces that I've written. Israel has a similar provision to what is proposed, in the sense that they've got a liability provision which includes a statutory defence where reasonable steps have been taken. That's a provision which I understand—and I may have to take this on notice to confirm—was initially designed to address some of the particular issues that have been identified in the cleaning sector, so it may be of particular interest to the committee.

Senator ABETZ: Thank you, Dr Hardy, for making yourself available today. You would agree with me that Australia, by international standards, has an exceptionally strong safety net of rights and protections for employees?

Dr Hardy : I would agree to the extent that it has a strong safety net on paper, but, as we've seen, in some ways, because it is so strong in the array of awards et cetera, it can sometimes lead to greater levels of non-compliance. I'm not sure that I would agree that we can assume that there is a strong safety net in reality.

Senator ABETZ: All right. Thank you very much for that. Would you agree with me that there is a significant difference between a franchise arrangement and a contract arrangement in relation to control?

Dr Hardy : Again, yes and no. In some instances, a supply chain arrangement might have quite high levels of control over workers and contractors within that supply chain. That's part of the reason why, for example, in the food and grocery sector, there have been codes of conduct introduced. For example, some of the supermarket retailers do exercise very high levels of control over what is happening throughout the supply chain, which can have direct implications for working conditions at the bottom of that chain. But I also agree that there are some differences between franchise networks and supply chains. There are some differences between labour hire and corporate groups. There are a whole range of organisational forms that we now see in labour market. The idea of our proposal was to allow and capture the diversity of arrangements that we now see without making it an unduly onerous. We certainly were very conscious that we did not want it to go beyond what was commercially viable or to suppress the kind of economic imperatives of the business community. At the same time, we are very conscious of the need to reframe these provisions to address some of the worst forms of exploitation that we're seeing in the labour market.

Senator ABETZ: Should actual knowledge be a component, or should people take reasonable steps to ensure that whoever's in the supply chain is being paid appropriately?

Dr Hardy : It's a good question because if you take out knowledge there is an argument that it is more akin to a strict liability form of an arrangement with a kind of safe harbour with the statutory defence. So by including that knowledge component, in some ways we are potentially confining its application more than a provision which did not have any knowledge component.

Senator ABETZ: In our society, in general terms, we just assume that people are abiding by the law. For example, if I see a hotel and I walk into it to buy myself a drink, I don't double-check to ensure that they are genuinely a licensed premises or that their licence is up to date. I just assume that because they're out there in the marketplace they are appropriately licensed. That is how we interact within our community. But if we start putting extra onus on people who are engaging in contractual arrangements, would, for example, the unions that have engaged Maurice Blackburn for legal advice be somehow held responsible for Maurice Blackburn's very substantial underpayment of staff over a period of time? I for one would not want to visit that onto the trade unions that have unwittingly engaged Maurice Blackburn without any knowledge of the underpayment, nor with any suspicion that there was any underpayment.

Dr Hardy : It's obviously a provision that will need to be interpreted by the courts. I think we have incorporated safeguards into the provision to allow the courts to take into account what a reasonable person in the position of the unions, in that example, would be expected to have known in the circumstances of that advice. So there are actually reasonable standards embedded within several levels of the provision which allow the courts to take into account the particular circumstances of the case. The difficulty with maintaining the status quo is that we won't be able to address, in my view, the insidious forms of exploitation that we are seeing on a routine basis. I would challenge the assumption that people make about whether employers are complying with their entitlements these days. Historically I think there was a broad assumption amongst the Australian community that Australia does have a strong safety net and it is complied with, and I think that assumption has been very fundamentally disrupted by the 7-Eleven case and many others that have since followed. I think that assumption may now be misplaced.

It's been really interesting. I've been working in this area for more than 10 years, and when I started out there was certainly a broad sense that most employers complied and it was simply rogues or bad apples that did not comply. I have seen a very significant shift in attitudes in the community in that respect. I do not think that people now assume that in cleaning chains, for example—in sectors of the labour market where you have high numbers of migrant workers, low wages, award reliance and low levels of unionisation—you're going to see high levels of compliance with employment standards.

Senator ABETZ: The chairman is asking me to wind up. Given that you refer to the issue of apples, I'll use that as an analogy, especially in the state of Tasmania. What happens in a circumstance dealing with a grocer or supermarkets such as Woolworths or Coles where, let's say, there is a huge oversupply of apples and they then are basically dumped on the market at a very low cost? Are the supermarkets allowed to buy them on this standard, or should they be put on notice that somehow the pickers of that fruit may well have been underpaid? That potentially is a—

Dr Hardy : If they engage in the dumping of oversupply of produce, which of course occurs from time to time both for Australian-grown produce and for imported produce, I think that the question then becomes: to what extent is the supermarket retailer bearing the losses associated with that, or to what extent are they seeking to pass those losses on to their suppliers, which of course is one of the drivers of noncompliance? It's one of the reasons why growers feel squeezed in some circumstances and feel that they have no choice but to engage dodgy labour hire firms and try to turn a blind eye to the fact that workers who may be picking fruit on their farm are not being paid correctly. But the question then becomes that the supermarket retailers are benefiting from that labour. Of course it's indirect, but that's the point. To the extent that they are driving those behaviours, to what extent should they be held to account, or should they get off scot-free? Should they continue to make huge profits at the expense of the suppliers and of workers who pick the fruit that they then onsell?

Senator ABETZ: Ultimately it's the consumer that benefits, because one assumes that if, let's say, the apples hit the market at $1 per unit rather than the normal $5 per unit then the grower of that product would prefer that more apples be sold at a lower price rather than having to dump them at the bottom of the farm gate without any market at all. So it then comes back to the question of what state of knowledge we try to impute to the supermarkets in buying. For the farmers and their capacity to pay workers, being paid $1 per unit of apples is a lot better than being paid $0 in a circumstance where the market is oversupplied.

Dr Hardy : Yes, I take your point, but I still think that the question becomes: who should be bearing the loss associated with the oversupply? Should it be the grower, the producer or the supermarket? Who should be blamed or held responsible when things go wrong for workers who are paid below award wages, particularly in those circumstances but also in normal circumstances? That's one example, and it's an extreme example, but there's a lot of evidence that suggests that supermarkets put pressure on growers and producers in terms of the prices at which they're required to supply the supermarkets in ordinary circumstances where there isn't an oversupply.

A lot of these supermarket retailers purport to have engaged in ethical purchasing and corporate governance policies that are designed to address some of these issues that we're talking about. Again, it seems somewhat symbolic when they say, 'Of course, we don't condone any exploitation in our supply chains,' yet they don't take any active steps to ensure that there is no exploitation taking place in their supply chains. 'We can rely on voluntary measures,' but again we see evidence which shows that that's not sufficient. The franchising example illustrates that self-regulation has its limits and the introduction of liability provisions enhances those self-regulatory measures, in my view.

Senator ABETZ: Thank you, Dr Hardy.

ACTING CHAIR: I've got one question on notice, Dr Hardy.

Senator O'NEILL: From a mental health point of view, I am interested in whether you are aware of any research internationally about the intersection between sound industrial relations law and the protection of wages for vulnerable workers and mental health outcomes. If you could take that on notice, I would certainly appreciate it.

Dr Hardy : Of course.

Senator O'NEILL: Thank you.

ACTING CHAIR: Dr Hardy, we're running out of time. Could I, on behalf of the committee, thank you for taking the time to talk to us today, given that you've got a sick child. We really appreciate it. There may be some questions on notice coming in. And we may have to ask you to come back, if we need to. So thanks very much, Dr Hardy.

Dr Hardy : A pleasure. Thanks for the opportunity to speak today.