Publication Labour Hire & Contracting Across the ASX100: Foreword, Executive Summary and Methodology

About This Report

This report has been prepared by Dr Katie Hepworth, ACCR’s Director of Workers’ Rights, with additional support from the ACCR research team. Dr Hepworth has worked extensively on workers’ rights in global supply chains across a range of academic, international development and trade union roles.

ACCR would like to acknowledge the feedback from academics, companies, investors and trade unions at various stages of the research and preparation of the report.

Foreword

The COVID-19 crisis—and the accompanying recession—has both illuminated and intensified divisions in the Australian workforce. Workers in essential sectors such as health care, cleaning, transport, logistics, education, energy and resources are being relied upon to produce and provide for us all in extreme and often dangerous circumstances. Many workers on the ‘front lines’ are being poorly paid or underpaid, and lack access to adequate health and safety equipment (PPE).

Many are experiencing an intensification of their workloads, but without being compensated for it. Many of these workers are employed in insecure and precarious situations.

They lack job security and have no access to paid sick leave. There have already been numerous reports in Australia and globally of workers unable to properly self-isolate, due to a lack of wage and welfare payments or other entitlements, along with reports of workers feeling unable to raise virus-related OHS issues due to the precarious nature of their employment.

Millions of other workers, of course, have lost jobs or shifts.

Australia’s labour hire workforce is a crucial part of this picture. Labour hire and contracting is no longer just used to manage short-term and seasonal fluctuations. As this report highlights, in some sectors, labour hire has been used to substitute large sections of the permanent workforce.

In producing this report, ACCR set out to investigate the particular risks to companies - and investors - of this workforce transformation. Many of these risks have been acutely highlighted by the pandemic.

Suppliers, contractors and labour hire workers are—in most cases—acutely exposed to the health and economic impacts of the pandemic. These indirect workforces are exposed to economic hardship through the cancellation of supplier contracts in industries affected by shutdowns. Labour hire and contracting workers face greater health risks due to their exclusion from pandemic sick leave provisions. In addition, temporary migrant workers face particular vulnerabilities—including heightened risk of falling into slavery-like conditions.

COVID-19 is a whole-of-economy crisis requiring a whole-of-economy response. While governments are leading with stimulus, there is a role for investors in ensuring companies adhere to strong social, labour rights and human rights standards.

The pandemic is an opportunity for investors to bolster their engagement on the “S” in ESG. By advocating for an economic recovery based on decent, safe and secure work, investors can ensure that we “build back better” after the crisis.

Executive Summary

Over the last three decades, one of the most profound changes to the structuring of the Australian workforce has been the expansion of labour hire employment arrangements, particularly in specific industries and sectors. Originally used primarily to manage short-term or seasonal fluctuations in demand, in some sectors labour hire now constitutes a significant proportion—or even the majority—of the regular workforce.

Labour hire is broadly defined as a triangular employment arrangement involving three parties: a worker; a host company; and an intermediary, such as a labour hire agency. In the ‘standard’ form of this triangular arrangement, the host company contracts an intermediary labour hire agency to provide them with labour. The labour hire agency then contracts a worker to provide that labour, and is responsible for paying the worker.

Fundamentally, labour hire arrangements split contractual and control relationships: the labour hire worker has a direct contractual relationship with the labour hire agency, but it is the host company who oversees their day-to-day work. The introduction of sub-contracting arrangements can further complicate the contractual and control relationships.

Employers may choose to use labour hire workers for a number of reasons, including:

• to reduce costs
• to adapt to volatile labour markets
• to outsource particular segments of their operations (e.g. recruitment and HR)
• to gain access to specialised workforces
• to undermine or circumvent union presence
• to avoid employer obligations
• to exert greater control over a workforce
• to shift risks and liabilities away from an employer.^[1]

However, in doing so, they may also increase their exposure to a range of workforce, business and operational risks.

The report describes the key workforce and operational risks associated with triangular working arrangements, analyses how ASX100 companies in selected sectors are exposed to these risks, and how they are reporting on their use of these arrangements.

It focuses on three key sectors: mining, construction, and commercial cleaning.^[2] As large scale property owners have some of the highest exposure to cleaning related business risks (including modern slavery), the cleaning section focuses on both cleaning providers and property services companies. The report has also highlighted risks in an emerging area of the construction sector: large scale solar installation.

These sectors were chosen because they demonstrated high rates of labour hire, involve significant non-compliance by labour hire providers with employment and other legislation, and/or due to the severity of risks in a sector.

While this report focuses on publicly listed companies within selected “high-risk” sectors, the risks discussed in the report are common to public companies across the index and to private companies which engage labour hire services.

Key Risks

While there are a number of reasons why companies may choose to use labour hire, the triangular nature of these arrangements also introduces significant risks, including:

• poorer Occupational Health and Safety (OHS) outcomes
• increased possibility of involvement in modern slavery, labour exploitation and wage theft
• lower levels of worker engagement and loyalty
• loss of human and intellectual capital
• reduced visibility of workforce composition, including diversity
• reduced workforce development, due to less access to training, skills acquisition.

COVID-19 has illustrated specific risks associated with the fissuring of the workforce and the outsourcing of responsibility from host companies to labour hire agencies and contractors. For example, the failure to extend sick leave and other entitlements to this segment of the workforce can put the whole workforce at risk - including direct employees. There have been numerous examples in Australia and globally of workers unable to properly self-isolate, due to a lack of wage and welfare payments or other entitlements, along with reports of workers unable to raise virus-related OHS issues due to the precarious nature of their employment.

Investor engagement on these risks is currently being hampered by poor company reporting on workforce issues. Although labour hire workers make up a substantial proportion of the workforce in certain sectors, most companies only report on their ‘direct’ workforce. Generally speaking, company reporting across the ASX is insufficient to allow investors to engage with companies about their Executive Summary employment models and overall workforce strategy.

In response, ACCR has developed a reporting framework, to guide companies in providing investors with reliable material and materiality-based disclosures, and to support investors to engage with companies on their management and performance in relation to these risks (see Section Five).

Key Findings

ACCR analysed the workforce reporting of 19 “host companies” in the mining, construction and property service sectors, with a focus on disclosures regarding the labour hire and contract workforce. This analysis found:

• Company disclosure on labour hire and/or contractors is very limited. Very few companies publicly report any information about their use of labour hire and contractors. Of the companies analysed, 42% made no material disclosure about their labour hire and/or contracting workforce in annual reporting documents. Only one company provided data relating to the size of their labour hire and/or contracting workforce in all operations (in Australia and, if applicable, globally), as well as disaggregated data on health and safety outcomes for their labour hire and/or contracting workforce specifically.
• Most companies do not define ‘labour hire’ and/or ‘contractor’ as terms in their reporting. Only two companies define these terms, and their definitions capture different sections of their respective workforces. Without these definitions, it is impossible to tell whether company disclosures reflect the entirety of the labour hire/contractor workforce.
• Most companies do not report on the size of their labour hire and/or contractor workforce, in either their Australian or global operations. All companies analysed have operations in Australia, but only 42% reported the total number and/ or percentage of contractors and/or labour hire in these operations. Of the companies analysed with global operations, 64% reported the total number and/or percentage of contractors and/or labour hire in their global operations.
• While most companies report some numerical health and safety data, very few disaggregate this for their contractor and/or labour hire workforce. 84% of companies reported at least some numerical information on health and safety outcomes. However, only 26% companies provide any safety data disaggregated by direct employees and contractors.

This analysis is presented in Section Three.

Methodology

This report identifies key workforce risks associated with the use of labour hire. It combines analysis of academic literature, government inquiries, media reporting and company reporting on labour hire in Australia.

To identify key workforce risks related to labour hire working arrangements, ACCR completed a desktop analysis of state and federal government inquiries^[3] covering labour hire matters over the last five years, and an academic literature review on the use of labour hire in Australia. Additional information was then gathered from media reportage, statements by the Fair Work Ombudsman, court documents, and enterprise agreements.

This report focuses on three industry sectors where labour hire is particularly prevalent, or where the risks associated with the use of labour hire are considerable: mining, construction, and commercial cleaning. The report has also highlighted risks in an emerging area of the construction sector that evidences specific risks: large-scale solar installation. In identifying the sectors to be analysed in this report, ACCR took into account the rates of labour hire in sector, noncompliance by labour hire providers with employment and other relevant legislation, and the severity of risks in each sector.

Sectors where there are no ASX100 host companies were excluded from this analysis (e.g. meat processing and horticulture). In both these sectors, ASX100 companies are exposed to labour hire related risks through their supply chains, and have a degree of control of their suppliers to address these risks. However, it was determined that they were beyond the scope of this report.

To identify the relevant subset of ASX100 companies for each sector, ACCR used both IBISWorld and Global Industry Classification Standard (GICS) industry codes to draw from a list of ASX100 companies (see Appendix). The ASX100 list was current as of 30 December 2019.

ACCR reviewed relevant company documents—including Annual Reports, Sustainability Reports, Corporate Governance statements or appendixes, and/or ESG Analyst toolkits. Company documents were reviewed for the fiscal year ending 30 June 2019 or the calendar year ending 30 December 2018, depending on a company’s reporting cycle. The cut-off date for information to be included in our analysis was 30 December 2019.

Case studies have also been used to illustrate labour hire related risks in each sector. The case studies are illustrative only and are not intended to provide a comprehensive picture of all labour hire related risks in every sector. Case study information was prepared by reviewing government inquiries, media reportage, and materials from corporate regulatory bodies.

In preparing this report, ACCR also consulted with companies, unions, investors, and government agencies.

Note on Terminology

ACCR’s desktop review identified a number of terms to describe triangular employment relationships, including: labour hire, contingent workforce, contractors, and particularly in the case of the property services and cleaning sectors, suppliers. These terms were often used interchangeably, and unless defined, provide limited information regarding the nature of the employment relationship.

As discussed in Section One of this report, each of these terms may encompass quite different relationships between the host company, direct employer and the individual worker. These differences often relate to whether a worker is required to perform their work onsite or offsite, and whether their work is required daily or almost daily for the routine operation of that site.

In this report, we use the term “labour hire” and “contractor” interchangeably to refer to all types of triangular employment arrangements, unless otherwise specified for clarity. We note that “contractors” may be used to refer to individual workers and to companies providing contract services.

Publication information

Download Publication 547 KB PDF

Author

Dr Katie Hepworth

Published on

12th May 2020

Stay informed

Get email updates about new ACCR research and shareholder advocacy on specific topics of interest to you.

Subscribe for email updates

We use Mailchimp for email updates and the Mailchimp privacy policy applies.