Underpayment and sham contracting in the labour supply chain has been the focus of much of the Fair Work Ombudsman’s (FWO) and the media’s attention this year.

The FWO has conducted a number of campaigns and inquiries into industries where the use of labour hire and independent contractors is prevalent.  In some circumstances, it has taken legal action where workers have been underpaid minimum wages and conditions.

The FWO inquiry into the a leading poultry food manufacturing group last year revealed a complex labour supply chain involving labour hire providers where workers were underpaid, worked long hours, unlawfully deducted money and provided with poor accommodation.

Further, most recently, Oaks Hotels & Resorts Limited agreed to back pay a total of $1.9 million to “housekeepers” it engaged as independent contracts when they should have been employees.

In response to incidences of exploitation of workers, the Victorian Government ordered an inquiry be conducted into the Victorian labour hire industry and insecure work arrangements. The Final report entitled “Victorian Inquiry into Labour Hire and Insecure Work” (the Report) was recently tabled into Parliament.

The Report noted that labour hire arrangements offer businesses flexibility in their workforce and are used when labour is required in certain skill sets, to fill a labour shortage or for short term projects. However, for labour hire workers, the engagement is often on a casual basis with no security of ongoing income.

The Report found that compliance with legal obligations widely varied in the labour hire industry and that while some labour hire operators complied with workplace laws, there were other labour hire operators whose activities were in breach of workplace laws.

The Report identified that the actions of “rogue” labour hire agencies, particularly in the horticultural, meat and cleaning industries, resulted in the exploitation of workers by way of underpayment of wages and superannuation, poor accommodation and non-compliance with work health and safety legislation.

In response to such practices, the Report recommended that the Victorian Government establish a labour hire licensing system in order to regulate the industry. This licensing system would require new and existing agencies to meet certain criteria in order to operate. The criteria suggested include:

Adoption of a “fit and proper persons” test. Labour hire companies and key personnel cannot have convictions or offences for fraud, have been previously involved in bankrupt companies (such as in a phoenix company scenario) or have breached workplace health and safety laws;

  • Demonstration of compliance with industrial instruments and minimum terms and conditions;
  • Registration with the Australian Taxation Office and demonstration of regular deduction of taxation and compliance with the superannuation legislation;
  • Having in place work health safety systems to comply with work health and safety legislation and to ensure the safety of workers at host organisations; and
  • Demonstration of compliance with migration laws and ensuring that employees have the right to work in Australia.
  • It was also recommended that agencies which operate without a license and host organisations that utilise the services of an unlicensed agency face civil liability or criminal offences.

Recently inquiries into labour hire were also conducted in South Australia and Queensland. A similar licensing system was recommended by the South Australian Parliamentary Committee Inquiry into the Labour Hire Industry while the Queensland Parliamentary Committee Inquiry into the Practices of the Labour Hire industry in Queensland was not able to agree on whether such a system should be introduced.

The FWO has made it clear that the exploitation of vulnerable workers, particularly in the labour supply chain, will not be accepted. It appears now that State governments are also willing to introduce regulatory functions to further enforce compliance with Australia’s workplace and sham contracting laws.


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