Regulatory avoidance in the temporary work agency industry: Evidence from Australia

Abstract

Within the context of the Australian Senate’s Inquiry into corporate avoidance of the Fair Work Act 2009, this research examines regulatory avoidance in the temporary work agency industry. The findings highlight that regulatory avoidance in Australian temporary work agencies has intensified and expanded, normalising exploitation and further exacerbating precarious work and its detrimental outcomes. The study contributes to debates regarding regulation of temporary work agencies and illustrates the importance of examining how regulatory avoidance is constructed and played out in national contexts.

Introduction

A temporary work agency (TWA) is defined by a triangular employment relationship, involving the temporary agency worker, the agency and the client firm. The worker is engaged by the agency and there is no direct employment relationship between the client firm and the temporary agency worker (Forsyth, 2017). Thus, TWAs create a form of externalised labour that is marked by its impermanence, as neither job assignments nor the employment relationship are ongoing. The non-standard nature of TWA work marks a distinct departure from the traditional, standard employment relationship (characterised by job security, career advancement, wage increase and social benefits) and facilitates greater flexibility in the way that firms organise work, enabling them to minimise their risks and responsibilities and maximise profits (Benach et al., 2014; Standford, 2017).

Although TWA work can yield benefits, research is increasingly highlighting problems as TWA work has been associated with substandard, insecure and often highly intensive work, inferior pay and a range of detrimental mental and physical outcomes (Bosmans et al., 2016; Forde et al., 2015). These problems are often associated with the fact that TWAs ‘inhabit a legal “grey zone”’ (Stanford, 2017: 385). As in other countries, studies in Australia have illustrated how TWAs are being used to avoid workplace laws and other statutory obligations, undermining the coverage and effectiveness of regulation established to maintain minimum labour standards and to protect against the immediate and broader social effects of precarious employment (Quinlan, 2012).

Such problems have led academics and trade unions in particular to call for changes to the TWA industry, including specific regulation. While such calls have long gone unanswered in Australia, several government inquiries have recently been conducted and licencing of TWAs has been introduced in a few states. Yet, regulation of TWAs largely remains remiss at the national level, and research examining the industry has waned in recent years, leaving us with a poor understanding of if and how issues associated with regulatory avoidance in the TWA industry may have changed, for better or worse. Relatedly, recent research from the UK has flagged the ‘subversive tactics’ and undercutting commonly utilised by TWAs (Enright and Pemberton, 2016: 16), leading the authors to highlight the need for further research across other national contexts.

Subsequently, this research generates contemporary evidence from Australia based on analyses of data associated with the Senate’s Inquiry into corporate avoidance of the Fair Work Act 2009 (FWA) (Commonwealth of Australia, 2017). The FWA, which took effect on 1 July 2009, encompasses Australia’s national framework of workplace laws which sets out enforceable minimum terms and conditions of employment, industrial relations rights and responsibilities, and it is intended to protect workers in an economic and social environment where there is an intrinsic imbalance of power between the employer and worker. This study focuses on analysing the issue of regulatory avoidance, defined as overt avoidance or breaches of the FWA or exploitation of loopholes and shortcomings associated with the FWA (Education and Employment References Committee (EERC), 2017), in the Australian TWA industry. As such, the study contributes to our understanding of regulatory avoidance in the TWA industry and its effects.

The article begins by examining the literature related to the TWA industry. The methods and data are then outlined before the findings are presented. The final section comprises the ‘Discussion and conclusion’.

The TWA industry

TWAs have become active and influential labour markets intermediaries as their growth and significance have expanded (Enright and Pemberton, 2016). The TWA industry employs over 10.4 million workers worldwide and it generates revenue of around €247 billion annually (International Confederation of Private Employment Services (CIETT), 2012). Australia’s TWA industry generates revenue close to AUD20 billion annually (IBISWorld, 2016), and it represents one of the most significant markets in the world (Adecco Group, 2012). While the Australian TWA industry only accounts for approximately 1.6% of the global market, it represents the most valuable market outside of the top five countries (France, Japan, Netherlands, USA and UK), and it is one of the fastest-growing TWA markets in the world (Coe et al., 2007). The most recent data available in Australia indicate that 5% of all employed persons (600,800 persons) found their job through a TWA or employment agency, and approximately 132,176 persons were paid by a TWA (Australian Bureau of Statistics (ABS), 2016). However, these data underestimate the number of TWA workers because independent contractors organised through TWAs are not included in ABS figures. Nevertheless, extant data clearly indicate that growth in this industry is strong and ongoing.

Agencies have the potential to play a positive role in the functioning of labour markets (International Labour Organisation (ILO), 2007), and research across various countries, including Australia, has highlighted benefits associated with such work, especially during the industry’s initial expansion (Smith and Neuwirth, 2008). For example, workers were said to be able to register with multiple TWAs and accept the placement of the agency best able to meet their needs and preferences (Rogers, 2000). Moreover, agencies were said to invest in their employees in order to retain ‘the best’ and most reliable temporary workers (Rogers, 2000). Additional research has reported similarly positive outcomes among professionals and highly skilled workers, who reportedly gain enhanced flexibility, high pay and greater autonomy and discretion working for TWAs (Alonzo and Simon, 2008).

Similarly, Australian survey findings reported by Adecco Group (2012) have highlighted the benefits of TWA work, indicating that TWA workers choose temporary work in order to maintain a flexible lifestyle (41%), as a stepping stone to full-time employment (32%), or because they cannot find full-time work (27%). Indeed, in a survey of its temporary employees, Adecco Group (2012) found that 84% of respondents would recommend temporary agency-based work, 67% indicated that the work improves or maintains skill levels and 67% are satisfied with their job. Other evidence from Australia also points to agencies acting as ‘good employers’, many of whom possess enterprise bargaining agreements, providing collective employee representation and entitlements and benefits that improve upon those provided in relevant awards (Independent Inquiry into Insecure Work in Australia (IIIWA), 2012).

However, a growing body of research has highlighted problems with TWA work. TWA workers typically bear a heightened risk of performing substandard work, involving lower levels of pay and security, less control and variety, reduced training and career opportunities along with higher injury rates, relative to workers employed on a standard (permanent) basis (Aletraris, 2010). Recent research by Bosmans et al. (2016) illustrated how TWA work negatively affected employees’ mental wellbeing, with workers experiencing feelings of powerlessness, isolation and unfairness. Other research has demonstrated how TWA work negatively affects employees’ physical wellbeing. According to Oxenbridge and Moensted (2011), the contracting out of hotel’s housekeeping to agencies is producing work intensification, ‘speed ups’, unsafe work practices, inferior wages based on piece rates and increased injury rates. Almost 90% of the housekeeping agency workers surveyed by Victorian Immigrant and Refugee Women’s Coalition and Liquor, Hospitality and Miscellaneous Workers Union (VIRWC) (2010) were migrants and three-quarters were women. Many of these employees only earn AUD25,000 per year (representing around one-third of the average full time salary in Australia), and around 50% have suffered injuries as a result of their work, but they are too scared to seek compensation (VIRWC, 2010).

Further research highlights that the lack of income security associated with TWA employment can affect individuals’ living standards and financial independence (Knox, 2010). Workers have reported difficulties obtaining bank loans, finding accommodation in the private rental market and maintaining relationships because of their lack of financial/employment security (IIIWA, 2012). For some workers, it can be difficult to escape the cycle of insecurity at work and unaffordable housing, creating serious health problems and widening health inequalities (Moss and McGann, 2011). Findings of this nature suggest that TWAs can be associated with detrimental outcomes for workers, especially migrants (Forde et al., 2015; Mavrakis, 2015). TWAs are known to be used frequently by migrants to access the labour market (Forde et al., 2015; Hopkins et al., 2016). Many of these workers rely on limited and culturally bound networks to gain employment, and their options are often restricted by poor recognition of qualifications from their home country. International students are also prevalent in the TWA industry as their visas only allow them to work for 20 hours per week while studying in Australia (Knox, 2010). Some firms deploy TWAs in order to defer their duty of checking the visa status of workers, thereby avoiding responsibility for the use of workers who are breaching visas or do not have visas (Underhill and Rimmer, 2016).

In Australia, trade unions have regularly expressed concerns regarding the substandard wages and conditions endured by TWA employees; they are especially worried about the ‘institutionalisation’ of the TWA industry (e.g. Australian Council of Trade Unions (ACTU), 2006; IIIWA, 2012). Similar concerns have been raised in other countries, including the US and UK (McDowell et al., 2008; Peck and Theodore, 2002), and the need for further research examining the activities of TWAs has been highlighted (Enright and Pemberton, 2016), particularly within the ‘mosaic of distinctive national formations’ (Coe et al., 2009: 80). The national context and its regulatory environment is thought to be especially important because ‘the actual use of LMIs (labour market intermediaries, namely TWAs) often reflects their regulatory capability to shift risk and lower wages, rather than the heralded role of matching skilled and mobile workers with flexible and highly paid contract work’ (Strauss and Fudge, 2013: 6). This allows firms to avoid entitlements and benefits normally paid to employees while also transferring the risk associated with fluctuations in demand to workers. Accordingly, Fu (2015: 1) points to the legal ambiguities that can ‘open the gates for abuse’ and goes on to assert that TWAs ‘are active institutional agents of neoliberal deregulation’ (p. 3). Taking a slightly more nuanced approach, Mitlacher et al. (2015) argue that the context in which agency work is conducted has a strong effect on its impact on workers and employers. In comparing experiences of agency work across different national/regulatory contexts, including Australia, Germany and Singapore, Mitlacher et al.’s (2015) findings revealed that increased regulation improved outcomes for agency workers.

Within Australia, the TWA industry is subject to limited regulation. There is no national regulation specific to the TWA industry, and regulations that do exist are confined to state jurisdictions (Mitlacher et al., 2015). Tighter regulation, including directives regarding entitlements and working conditions for temporary agency workers such as those provided in the European Union (EU), does not exist. Moreover, there are no limitations on the occupations or industries in which TWA agencies can operate, the number of hires that can occur or the length of the hire (Underhill, 2006). A number of inquiries into TWA practices have recommended the development of licencing within the industry (e.g. Forsyth, 2016; Parliament of Queensland, 2016; Parliament of South Australia, 2016). In Victoria, for example, the state government has considered the findings of an extensive inquiry and agreed to establish a system for licencing labour hire agencies. Similarly, a consultation process is currently underway on TWA regulation in South Australia and a bill has been introduced into the Queensland Parliament to create a TWA licencing regime in that state, following parliamentary inquiries in those states (EERC, 2017). In contrast, the federal government has done little in terms of licencing within the industry. At present, the FWA is the most significant regulation at the national level, marked by its attempt to consolidate the federal industrial relations system and create a statutory floor of employment rights (Mitlacher et al., 2015).

For most TWA staff, employment is casual and regulated through the FWA in conjunction with the relevant industry-level award. Critically, casual workers are not entitled to many of the benefits associated with standard (permanent) employment, including paid (annual and sick) leave or notice of termination. However, they are entitled to a 25% casual loading – a wage premium in lieu of being excluded from the standard employment entitlements mentioned (Mitlacher et al., 2015). The regulation makes no attempt to restrict casual employment to temporary, short-term or irregular engagements. Subsequently, a large number of casual employees perform regular and predictable work on an ongoing and often long-term basis (Mitlacher et al., 2015). Critics of this entrenched precarious employment argue that casual work should be confined to engagements that are genuinely irregular, intermittent or very short term (IIIWA, 2012).

A smaller proportion (exact numbers are not known because precise data are not collected) of TWA employees are covered by enterprise bargaining agreements likely to provide entitlements and benefits superior to those provided by the award system. However, most of these sorts of collective agreements still classify TWA employees as casual and therefore pay by the hour; thus, employment remains impermanent and annual and sick leave provisions are unlikely to be offered (Knox, 2015).

Other TWA employees are treated as independent contractors and the FWA does not protect them, though many of these workers are actually being misrepresented as such (Australian Building and Construction Commission (ABCC), 2011). For instance, the ABS (2011) data indicate that approximately 40% of independent contractors do not have authority over their own work, which is largely indicative of ‘sham contracting’ arrangements that misrepresent employees as independent contractors. These arrangements are rife in the construction industry (Construction, Forestry, Mining and Energy Union (CFMEU), 2011) and the frequency of sham contracting is also increasing in other segments of the TWA industry, including hospitality (Knox, 2010). By employing workers under commercial contracts rather than as employees, firms avoid having to pay a range of entitlements such as superannuation, sick and annual leave, as well as workers compensation. Moreover, investments in training are also frequently avoided through the use of sham contracting arrangements. Such arrangements, according to ABCC (2011),

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. (p. 10)

Often employers disguise an employment relationship (with an employee) as an arrangement between a principal and contractor by engaging workers through third-party TWA agencies (ABCC, 2011). Although the FWA states that employers cannot knowingly misrepresent an employment relationship as a contracting arrangement, evidence from workers and unions suggests that the legislation is not proving to be effective and such practices are occurring (IIIWA, 2012; VIRWC, 2010). In the construction industry, for instance, between 26% and 46% (between 92,000 and 168,000 workers) of all contractors are actually working unlawfully in sham contracting arrangements (CFMEU, 2011). Sham contracts enable employers (including TWA agencies) to minimise tax contributions and their responsibility to protect workers from injury by misrepresenting an employment relationship as a contracting one (IIIWA, 2012). In some sectors, including construction and cleaning, employers are developing complex outsourcing and contracting chains, often involving the use of TWA agencies and sham contracts, in order to maximise profits and minimise liabilities (IIIWA, 2012; VIRWC, 2010).

Further problems stem from so-called ‘phoenixing’ activities within the TWA industry (Parliament of Australia, 2016). Phoenixing occurs when a TWA dissolves and then recommences operations using a different business name in order to avoid legal obligations. Such activities are harmful to the industry and its workers (Parliament of Australia, 2016).

Unfortunately, more recent academic research examining the TWA industry in Australia has been scant. While Inquiries conducted by South Australia’s Economic and Financial Committee (2016) and Industrial Relations Victoria (IRV) (2016), for example, suggest that the problems associated with TWA work have not been resolved, the specific terms of reference vary between Inquiries and analysis of the TWA industry at the national level has been remiss until now. The recent Senate Inquiry into corporate avoidance of the FWA (Commonwealth of Australia, 2017) provides unique national data related to TWA industry, as outlined below. This research analyses those data in order to understand how regulatory avoidance is constructed and played out within Australia’s TWA industry, and its effects. The findings contribute to debates surrounding the regulation of TWAs.

Research data and methods

On 13 October 2016, the Australian Senate referred an Inquiry to the Education and Employment References Committee (the Committee) into the incidence of, and trends in, corporate avoidance of the FWA. This inquiry came about as a result of growing indications that some corporate employers are endeavouring to find ways around the rights and protections the FWA is intended to provide for workers in Australia (EERC, 2017). The purpose of the FWA, as with comparable legislation around the world, is to protect workers where there is an intrinsic power imbalance between the worker and the employer.

The TWA industry, otherwise known as ‘labour hire’ and referred to as such in the Inquiry, was central to the Inquiry’s terms of reference. Specifically, the terms of reference for the Inquiry were to inquire into and report on

the incidence of, and trends in, corporate avoidance of the Fair Work Act 2009 with particular reference to:

1. (a) the use of labour hire and/or contracting arrangements that affect workers’ pay and conditions;

2. (b) voting cohorts to approve agreements with a broad scope that affect workers’ pay and conditions;

3. (c) the use of agreement termination that affect workers’ pay and conditions;

4. (d) the effectiveness of transfer of business provisions in protecting workers’ pay and conditions;

5. (e) the avoidance of redundancy entitlements by labour hire companies;

6. (f) the effectiveness of any protections afforded to labour hire employees from unfair dismissal;

7. (g) the approval of enterprise agreements by workers not yet residing in Australia that affect workers’ pay and conditions;

8. (h) the extent to which companies avoid their obligations under the Fair Work Act 2009 by engaging workers on visas;

9. (i) whether the National Employment Standards and modern awards act as an effective ‘floor’ for wages and conditions and the extent to which companies enter into arrangements that avoid these obligations;

10. (j) legacy issues relating to Work Choices and Australian Workplace Agreements;

11. (k) the economic and fiscal impact of reducing wages and conditions across the economy; and

12. (l) any other related matters. (Commonwealth of Australia, 2017: 1)

Notice of the inquiry was posted on the committee’s website and the committee wrote to key stakeholders to invite submissions. Prior to holding public hearings, the committee advertised the inquiry in regional newspapers in those areas. In total, the committee received 212 submissions and held nine public hearings across Australia between 3 February and 9 June 2017: in Collie, Canberra, Ballarat, Melbourne, Sydney, Newcastle, Brisbane, Melbourne and Canberra.

Data from the inquiry, including the submissions and Hansard from public hearings, formed the primary focus of this research. Inquiries are ideally suited to illustrating and understanding, by way of qualitative analysis, social phenomena and their effects. In addition, such secondary data are particularly well suited for documenting phenomena while minimising researcher bias that may arise through recounting observed social phenomena. That said, care must still be exercised in broad extrapolations from findings, consistent with qualitative research methods (Rubin and Babbie, 2008), as Inquiries represent a contextually contingent, single time-point data source.

Using qualitative analysis, each submission was analysed to distil whether it reflected broader views conveyed across submissions or constituted a unique case. Unique cases were removed and data revealing trends across submissions extracted to analyse stakeholder perceptions regarding regulation and regulatory avoidance in the TWA industry. The data obtained from submissions were content analysed to identify common themes among the issues identified in relation to the TWA industry (Baxter and Jack, 2008; Yin, 2003). This process enabled trends to be drawn out across the data (Yin, 2003). Associations between themes were assessed by examining how stakeholders, including workers, managers and union officials explained any connections between TWA work and its regulation, issues of regulatory avoidance and their effects. These data were supplemented with Hansard from the public hearings and the Committee’s final report (EERC, 2017), enabling a fuller understanding of how regulatory avoidance is constructed and played out within Australia’s TWA industry.

Research findings

Overall, analysis revealed three main themes. The first theme encompassed evidence of the TWA industry’s positive effects and attested to its adherence to regulation. The second theme encompassed evidence of regulatory avoidance within the TWA industry, which was associated with negative effects previously identified in extant research. The third theme revealed additional forms of regulatory avoidance, producing negative effects that have not previously been highlighted in research examining the Australian TWA industry. These themes are considered in turn.

First, analysis revealed evidence attesting to TWAs adherence to regulation and the range of benefits provided by the industry. Submissions, albeit primarily from representatives of the TWA industry itself, indicated that agencies serve an important function that is critical to other Australian industries. The Australian Chamber of Commerce and Industry (ACCI) stated, for example, that ‘most employers endeavour to do the right thing and to be mindful of the crucial role that private sector employers play in creating wealth, prosperity and opportunities for social and economic participation for Australians’ (S148: 4). In doing so, the ACCI emphasised the importance of the TWA industry to the performance and competiveness of Australian business. Moreover, evidence supplied by a range of TWAs and their representatives indicated that TWAs are ‘good employers’ who uphold, and in many instances exceed, minimum wages and conditions while also providing workers with valuable training and career development opportunities, flexibility and preference matching. Illustratively, the Australian Industry Group (Ai Group) suggested that the TWA industry is critical to addressing economic and business challenges faced by employers, and ‘the vast majority of … [TWAs] are reputable in their employment practices and comply with relevant laws and regulations … and often provide superior wages and conditions’ (S179: 7). Such evidence indicated that TWAs can fill legitimate needs on the part of their clients and employees. This view and the industry’s alleged adherence to regulation was endorsed in the Coalition Senators’ Dissenting Report, which formed the final section of the Inquiry’s final report (EERC, 2017).

Second, the data revealed cases of regulatory avoidance which produced a range of problems, as noted by extant literature. Overwhelmingly, submissions revealed an increasing prevalence of TWA-based work across all industries and indicated that most TWAs relied on casual employment. Illustrating this trend, a submission from Job Watch emphasised the increasing level of casualisation and TWA-based work (S187), leading to an ever growing number of workers denied job security and paid (sick and annual) leave. In addition, United Voice highlighted that TWA work ‘is no longer used as a temporary supplement to permanent work and is now often used as the permanent workforce, replacing permanent directly engaged employees’ (S203: 4). Moreover, casual employment within TWAs was often long term in nature. An example of an employee working as a casual for the same host firm for a period of 10 years was provided, for instance, and there were typically no opportunities to convert to permanent employment. Examples of this type were common among submissions and reiterated in Hansard.

This widespread and persistent casual employment among TWAs was highlighted as contributing to systemic insecurity at work:

The exploitation that we see daily is systemic and occurs across the economy, not in small pockets …. The deregulated labour market allows for free and easy exploitation and free and easy utilisation of loopholes. (Industrial Officer, National Union of Workers; Senate 15 March 2017: 17)

Another issue consistent with extant research related to the inadequate provision of training and progression opportunities within the TWA industry. Illustratively, the Australasian Meat Industry Union argued that the meat industry’s growing reliance on TWAs was eliminating training opportunities for local workers. Moreover, inadequate provision of training was said to precipitate skill shortages and contribute to the creation of an ever stronger reliance on 457 visa workers to perform higher skilled duties. Relatedly, a lack of apprenticeships within TWAs was also highlighted as an issue, as it adversely impacted training and skill development opportunities: ‘In relation to apprenticeships and training, it is unusual for labour-hire companies to have any apprentices at all. It simply is not the business they are in’ (Assistant National Secretary, Construction, Forestry, Mining and Energy Union, Senate 15 March 2017: 37). Other submissions emphasised the inadequate training among TWA employees working in dangerous environments. One particular submission outlined how a worker was almost crushed under a tractor and highlighted that no induction or safety training was provided.

In addition, evidence of underpayment was extremely common within submissions and Hansard. In their final report, the Committee stated that ‘underpayment is rife and practically the norm in many industries that employ vulnerable workers’ (EERC, 2017: 4). In one instance, employees who had worked casually for a TWA for 4–7 years were paid, on average, AUD100 to AUD150 less than permanent workers. In another case, TWA employees were paid around AUD5 to AUD6 per hour as packers on a berry farm; faster packers were able to earn AUD12 to AUD14 per hour. In another case, a TWA employee was paid AUD100 per day, in cash, for working from 7:00 a.m. to 6:30 p.m. When she complained about underpayment, she was told ‘if you won’t do it there are hundreds of others who will!!!’ (S076). A submission by the Queensland government included reference to a number of high-profile cases of underpayment, including six workers underpaid a total of AUD2691 on a strawberry farm, 90 Korean backpacker workers underpaid AUD16,000 and 107 casual employees collectively underpaid AUD15,892 while working on farms in Queensland (S150). Such exploitation was especially common among (im)migrant workers with limited English proficiency, a lack of knowledge regarding their rights and reduced bargaining power. Many of these workers feared taking any action against the TWAs as they desperately needed work.

Related evidence from submissions and Hansard indicated that the penalties associated with wrongdoing were widely thought to be inadequate. One example provided by the FWO involved a AUD4,400 fine for underpayments totalling over AUD200,000. Numerous witnesses in the inquiry suggested that employers are prepared to flout the law and take a calculated risk because they believe that they are not likely to get caught and even if they do, the penalties are minimal. Submissions supported such claims and the Committee’s final report emphasised that existing penalties are ‘proving powerless’ (EERC, 2017: 59).

According to evidence examined, these issues were often occurring in combination with ‘phoenix’ activities, whereby TWAs would dissolve and then recommence operations using a different business name in order to avoid legal obligations. ‘Phoenixing’ was commonly cited among submissions and witnesses indicated that it served to enable TWAs to continue to exploit workers. Illustratively, the South Australian government noted that

questionable operators act quickly to put the labour hire firm into administration/liquidation when a taxation liability is assessed. In some cases, these operators are involved in phoenix type activity (the intentional transfer of assets from an indebted company to a new company to avoid paying tax). (S113: 5)

The issue of sham contracting was also persistent within the TWA industry. Evidence to the following effect was provided:

Just two days ago I received another complaint … the worker said that the boss said, ‘You need to sign this ABN – this happens all the time – otherwise you can’t work here. The ABN will mean that you’re an independent contractor … I will pay you less than the minimum wage and I’ll try to make it up to you in bonuses’. It is all illegal, but it happens nevertheless. (Secretary, Victorian Trades Hall Council, Senate 15 March 2017: 15)

The ongoing negative implications associated with the TWA industry highlight that existing regulation is not adequately protecting workers. Rather, regulatory avoidance and worker exploitation, as identified in extant research, continue to create serious and ongoing problems.

Finally, analysis highlighted additional forms of regulatory avoidance creating emergent problems not previously identified within existing research. One particular and growing problem related to the termination of collective agreements and/or unrepresentative formation of collective agreements that were then extended to larger workforces, often in different locations, leaving workers worse off by undercutting their pre-existing pay and conditions. The termination of agreements, initiated by both standard (direct hire) employers and TWA employers, appeared to be an increasingly common practice ‘whereby employers are able to subvert the collective bargaining process by terminating old agreements or threatening to do so, leaving employees’ pay and conditions to fall back to the award, instead of bargaining to negotiate a new agreement’ (S197: 4). Numerous submissions and witnesses provided evidence consistent with these practices; in their final report, the Committee stated that employers are terminating agreements, or using the threat of termination as a coercive bargaining strategy, in order to gain an advantage in negotiations and significantly reduce employee wages and conditions (EERC, 2017).

Other evidence indicated that unrepresentative agreements were being formed based on ‘the use of artificially small and unrepresentative voting cohorts to approve enterprise agreements with a broad scope to cut workers’ pay and conditions’ (S148). While major cases illustrating unrepresentative agreements often involved standard (direct hire) employees, such agreements were also represented among TWAs. In relation to standard (direct hire) employees, the National Research Officer at the Australian Manufacturing Workers’ Union (AMWU) stated,

We recently obtained … prima facie evidence of another agreement made with few employees but which subsequently goes on to cover many more employees … Australia wide …. they are being offered contracts with about a 10 per cent cut in wages. (Senate 15 March 2017: 7)

An Industrial Officer at the National Union of Workers referred to this arrangement as ‘sham bargaining’, arguing that ‘We need an end to sham bargaining. It is very easy now for an employer to effectively unilaterally determine the wages and conditions in a workplace through sham collective bargaining. We need an end to that’ (Senate, 15 March 2017: 17). Further evidence indicated that ‘sham bargaining’ was used within the TWA industry in order to avoid more extensive, and arguably legitimate, collective bargaining, thereby leaving workers worse off. Several submissions indicated that support for these unrepresentative agreements was being fabricated by employers. In other stances, firms were utilising TWAs, which often relied on so-called ‘sham bargaining’, to supply the vast majority of their workforce with the TWAs engaging in ongoing ‘sham bargaining’. This complex arrangement was explained by one of the workers:

Six months before the EBA expired, we were asked to come into the office and sign on to a new agency. I asked them about the EBA and if we had to negotiate with that. They said, ‘No, an EBA has already been filed with Fair Work; you just have to sign over once it’s been approved’. So we were called back in and signed over, and that was done; we were on to a new agency. When the EBA expired for Oxford under the 21 people that were doing negotiations, we were sent out a letter to say, ‘If you don’t sign the new common-law contract by a certain date, your pay will drop’. We did not know what the drop was, because we had never seen our actual EBA; we had never been told about it. We found out it was about $7 less an hour than what we are getting now. There are people that have been there for over 10 years and have never, ever bargained for an EBA – not once. (Senate 15 March 2017: 18)

Additional evidence from submissions and witnesses illustrated that many of the agencies used by the host firm – Oxford – were simply ‘shelf companies’ set up by the host itself to avoid legitimate bargaining:

To be clear: the purpose of the transfers … is to deny workers the ability to collectively bargain. So the transfers occur some months before a collective agreement is set to expire, and people are transferred to an entity that already has a collective agreement in place that will run for probably four years. (Industrial Officer, National Union of Workers; Senate 15 March 2017: 19)

Other examples, including CUB and John Holland, indicated that such practices were not isolated. Typically, individual submissions and witnesses argued that these so-called ‘sham agreements’ were used to ‘deliberately … deprive workers of the right which they should enjoy under the Fair Work Act to collectively bargain’ (Secretary AWU Victoria, Senate 15 March 2017: 34) in order to undercut established rates of pay and conditions. As outlined in one submission: ‘[i]n the case of CUB, it allowed CUB to engage a new labour hire provider and reduce the wages of long-standing workers at the Abbotsford site by up to 65%’ (S184: 7). In certain areas, such as the meat industry, it was claimed that such practices were rampant among TWAs, being used to circumvent legitimate collective bargaining. Representatives of the Australasian Meat Industry Union indicated that meat processors who were previously paid EBA rates have been replaced by TWAs paying award rates, or in some instances significantly below award rates (often due to blatant disregard of minimum wage rates), frequently requiring 417 visa workers to sign flexibility agreements to work overtime and on public holidays for no penalty. The Committee’s final report noted that ‘sham bargaining’ distorts the balance of power in favour of the employer, undermining the purpose of the FWA and its emphasis on collective bargaining – intended to minimise the power imbalance between employer and employees during negotiations (EERC, 2017).

In more extreme cases, forms of modern slavery and debt bondage were alleged:

workers find themselves in what International Labour Organization rightfully describes as modern slavery. If you are forced to live somewhere, forced to take transport to a workplace, you do not know who is employing you, you have no power in that situation, you do not get paid and there is nothing you can do about it, that sounds to me like slavery … This kind of slavery is real and alive within Australia … (Principal, Maurice Blackburn Lawyers, Senate 20 April 2017: 2)

These emergent problems, unidentified by pre-existing research, reflect an intensification and expansion of regulatory avoidance, as TWAs further concentrate and extend their deregulatory activities.

Discussion and conclusion

This study sought to examine regulatory avoidance within Australia’s TWA industry through an analysis of the Senate’s Inquiry into corporate avoidance of the FWA. The analysis revealed three key themes. The first theme encompassed evidence to refute alleged regulatory avoidance within the TWA industry, emphasising the industry’s adherence to regulatory requirements and the benefits associated with TWAs, including increased flexibility, wages and autonomy along with enhanced training and development, and career progression opportunities. These results are consistent with evidence of TWAs acting as ‘good employers’, as previously highlighted by IIIWA (2012) and research generated within the industry itself (e.g. Adecco Group, 2012). Findings of this nature also accord with the conclusions outlined in the Coalition Senators’ Dissenting Report (EERC, 2017), which highlighted the industry’s adherence to regulation and emphasised the need for TWAs in Australia, as they can create opportunities and benefits that fulfil important needs for business and workers. Achieving these types of positive outcomes is likely to depend on agencies adhering to, or exceeding, basic regulatory requirements, as noted by prior research indicating that TWAs can yield benefits in the context of increased regulation (Mitlacher et al., 2015; Strauss and Fudge, 2013). Notably however, evidence to this effect was limited and partial, stemming primarily from the TWA industry itself. In contrast, evidence related to regulatory avoidance and its negative effects, within the second and third themes, was far more extensive and stemmed from a broader range of parties, as discussed below.

Evidence related to regulatory avoidance and its effects highlighted an overwhelming reliance on casual employment, which created systemic insecurity and left workers with no entitlements to paid annual or sick leave. Findings illustrated the unnecessary and stressful insecurity that this arrangement created in workers’ lives, in terms of both their finances and employment, for multiple years in some instances, and workers were unable to convert to permanent employment. Additional problems involved inadequate training and career progression opportunities as well as serious health and safety problems. Reports of underpayment were extremely common, and the penalties associated with wrongdoing were widely condemned as inadequate and a factor that contributed to employers’ willingness to engage in wrongdoing. Moreover, evidence of sham contracting and ‘phoenixing’ was apparent, suggesting that such practices are relatively widespread. Overall, these findings are consistent, albeit on a larger scale, with those reported previously (Aletraris, 2010; Forsyth, 2016; IRV, 2016). While these findings are not new, they provide further evidence of the types of problems that exist within Australia’s TWA industry and their serious impact on immigrant workers in particular (Forde et al., 2015; Mavrakis, 2015). These findings also highlight that the TWA industry is not devoid of regulatory avoidance or serious problems, despite such claims from the industry (Adecco Group, 2012) and the Coalition Senators’ Dissenting Report (EERC, 2017). Rather, extensive evidence indicates that TWAs are actively avoiding regulation in a seemingly unfettered manner, eroding existing regulation and significantly disadvantaging vulnerable workers.

Further evidence of regulatory avoidance within TWAs revealed emergent problems that have not been identified in pre-existing research. Most of these problems related to collective bargaining, a practice that has previously been uncommon among TWAs in Australia (Knox, 2015). While it is difficult to ascertain the exact number of TWAs engaging in collective bargaining, the findings suggest that it is expanding and that serious issues exist. Typically, these issues involved the formation of unrepresentative collective agreements, or ‘sham bargaining’, and the termination of collective agreements, both of which are being used by TWAs to undermine legitimate collective bargaining and disadvantage workers. In some instances, these bargaining practices resulted in wages and conditions inferior to those contained in the relevant award. At times, these arrangements were used by TWAs that were actually ‘shelf companies’ of the client/host, enabling employers to act as clients rather than direct employers while also undercutting established rates of pay and conditions through unfavourable forms of bargaining. These findings demonstrate that TWAs are subverting and eroding the collective bargaining process in order to lower the bargaining floor and coerce workers into accepting lower wages and conditions, exposing workers to ‘significant vulnerability’ (EERC, 2017: 42). The use of ‘subversive tactics’, as flagged in the UK (Enright and Pemberton, 2016), is enabling TWAs to actively dismantle established bargaining structures and normalise the exploitation of workers in order to create a competitive advantage.

TWAs are developing elaborate strategies to avoid regulation and circumvent collective bargaining, shifting the balance of power further in favour of the employer and disadvantaging workers by undercutting established rates of pay and conditions. Indeed, in their final report, the Committee indicated that ‘corporate avoidance of obligations to workers has become a business model taking many forms’ (EERC, 2017: 3). It is especially concerning that these issues remain prevalent and further issues have emerged, over a decade since researchers began identifying such problems and calling for appropriate responses (ACTU, 2006; Underhill, 2006). Indeed, the Committee acknowledged the federal government’s lack of action and asserted that ‘employers are using labour hire specifically to drive down wages and reduce workers’ conditions and entitlements’ (EERC, 2017: 56). Such trends threaten to precipitate a return to the widespread use of temporary and precarious work that dominated in past centuries, along with its detrimental social effects including poverty and malnutrition that impacted health, education and community standards (Quinlan, 2012).

Perhaps most importantly, these findings underscore the absence of appropriate responses to redress problems within Australia’s TWA industry – long called for by academics and trade unions (e.g. ACTU, 2006; IIIWA, 2012; Knox, 2015; Underhill, 2006). The absence of such responses has allowed already significant problems to compound and enabled additional problems to emerge, seriously disadvantaging workers. Employers’ willingness and ability to abuse aspects of the existing regulation, through avoidance, is a fundamental problem requiring redress. Resolving this problem is inclined to demand the kinds of responses that have previously been identified and called for, including regulatory amendments, preventive regulation, hard regulation and tougher penalties (e.g. IIIWA, 2012; IRV, 2016). While it is encouraging to see some momentum on the part of a few state governments in terms of licencing of TWAs, this is only one part of the solution. TWAs frequently operate across multiple states; even if a national licencing scheme is established, which seems unlikely in the current climate, it would need to extend to international TWAs operating in Australia. In addition, licencing may not be able to resolve the full gamut of problems identified. Substantive regulatory amendments, monitoring and enforcement are critical.

In sum, these findings illustrate the importance of examining how regulatory avoidance is constructed and played out within specific national contexts. The regulatory avoidance evident in Australia has enabled TWAs to intensify and expand their deregulatory activities by unravelling regulatory regimes (in the absence of adequate monitoring and enforcement) and extending the ‘grey zone’ surrounding TWAs (Fu, 2015). These subversive activities have facilitated and exacerbated precarious work, compounded the detrimental outcomes experienced by TWA workers and normalised their exploitation. Action must now be taken in order to redress this pervasive regulatory avoidance and its detrimental effects.