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Independent contracting in low skilled, low paid work in Australia.

INTRODUCTION

The construct of the precarious worker is not new; but it may be applied today to a growing segment of the labour market in developed and developing countries (Fevre, 2011). This is particularly evident in the spread of contracting in low skilled, low paid work (Burrow, 2008). Precariousness in work, which has been an unfortunate collateral consequence of the capitalist project, connotes much more than marginality or atypicality. It is a form of disadvantage in the labour market that is associated with high risk and, arguably, exploitation (Leighton & Painter, 2007). The problems of child labour and some forms of domestic work date back centuries (Cox, 2006). More recently, precariousness has been associated with homeworkers performing repetitive tasks for next to nothing; youth; workers displaced from gainful employment due to technology or the economic fortunes of enterprises (Leighton & Painter, 2007); unemployed workers in developed countries whose jobs have been off-shored or outsourced in some other way to low wage, developing countries; and workers made redundant only to find their retirement nest egg almost totally wiped out by the impact of the global financial crisis on pension and superannuation fund returns.

This paper examines the growing use of self-employment through independent contracting in low paid, low skill work, sometimes under sham contracts, and often within asymmetrical power relationships in the workplace. This type of contract work fits oddly into a set of work arrangements that were once occupied by consultants and relatively highly paid self-employed professionals in management, IT, accounting and finance, and engineering (Flecker & Meil, 2010). Today, in Australia and in other developed countries, there is a growing group of independent contractors who are engaged as cleaners, delivery drivers, construction workers, beauticians, call centre workers, and technical, scientific and maintenance workers (ACTU, 2011a). Amidst claims of exploitation by employers seeking to externalize risk and reduce input costs (ABCC, 2010), the status of some low-skilled, low paid contract workers may be aptly described as precarious, or insecure, because of their exposure to disadvantage and discrimination in the labour market (Ryan, 2001; Campbell & Peeters, 2008; Russell & Thite, 2008; Knox, 2010). How has this occurred? How do we locate these developments within existing theoretical frameworks? This paper makes a contribution to answering these questions.

The availability of data is a significant hurdle encountered in researching independent contract work among the low-skilled. There is no systematic collection of data on this segment of the labour force, and the best available information comes from government reports and union investigations, such as the recently launched ACTU investigation into insecure work (ACTU, 2011a). The reality is that workers engaged in contract work, in low-skilled areas, do not press their cause, and employers who are applying contracting arrangements do not readily grant interviews to researchers or journalists, let alone union officials. There is a relatively limited line of studies in Australia on independent contracting in low-skilled tasks; for example, Campbell and Peeters' (2008) work on contract cleaners. However, the difficulties in gaining access to individual and small group level data continue.

The first section of the short paper backgrounds recent developments in independent contracting in Australia, highlighting increasing concern by government and unions regarding a tendency towards insecurity and precariousness amongst low skilled, low paid contractors. These developments are located in the available industrial relations and labour law literature on independent contracting, with particular reference to Australia. Next, the growing use of independent contracting is explained using two theoretical frameworks: HR architectures, positing relationships between modes of employment and modes of HR governance; and dual labour market theory. The paper concludes by drawing several implications from this case, including issues for further research.

THE GROWING USE OF INDEPENDENT CONTRACTING

In 2008, the then President of the Australian Council of Trade Unions (ACTU) stated that:

... outsourcing and contracting practices have meant that many vulnerable workers are now (formally) classed as independent contractors, and so have lost all of the protections available to 'employees' under the law. (Burrow, 2008).

More recently, the ACTU has launched its own investigation into insecure work (ACTU, 2011a), prefacing the need for this study the following observation:
   The Independent Inquiry into Insecure Work has been
   commissioned by the ACTU to analyse the increase in
   casual, contract, labour hire and other forms of insecure
   work in Australia over recent decades, and the impact it
   has on workplace rights, household finances, and wider
   society.


These observations illustrate a wider level of concern in the community about the application of, and the implications arising therefrom, of independent contracting in low skilled, low-paid work. For example, the Australian Building and Construction Commissioner recently expressed strong concern about the pervasive negative effects of unlawful sham contracting, especially for vulnerable workers (ABCC, 2011). In their study of contract cleaners, Campbell and Peeters (2008, p27) found that:
   low pay for such workers is linked not only to low hourly
   rates but also to short and irregular hours of paid work.
   This draws attention to the fact that the problems faced by
   contract cleaners are not confined to pay but readily
   extend to other aspects of job quality such as work
   schedules and workload.


It would be incorrect to impute vulnerability or precariousness to work and workers merely because they are independent contractors, low skilled or not. There is a tenor of this logic in recent claims by some unions regarding vulnerability, insecurity and precariousness. The ABCC and the Productivity Commission have been more circumspect in this regard; for example, the Australian Building and Construction Commissioner claims to "have consistently noted the majority of contracting in the building and construction industry is legitimate and necessary" (ABCC, 2011).

That said, there appears to be some similarities in circumstances facing low-skilled contractors who have been identified as being in a precarious position. These common features appear to include: low pay, perhaps under something akin to a piecework system (for example, in parcel delivery); irregular working hours; an inability, or a lack of opportunity, to offer their services to any other organisation due to the number of hours for which they are required or the pattern of hours that they are expected to be available to a single principal contractor; a lack of protection from workplace discrimination, poor access to collective bargaining (Barnes & Lafferty, 2007; Campbell & Peeters, 2008); reliance on safety net provisions (Lawrence, 2009); part time and casual workers, international students, and indigenous and migrant women workers (Elton & Pocock, 2008; Nyland, Forbes=Mewetta, Marginson, Ramiac, Sawirb & Smith, 2009). This list of common features evident in the literature thus includes a mixture of work design, working conditions, labour force status, and identity. This is a broad canvas.

Until recently, independent contractors were not typically labeled as being engaged in work that is vulnerable, or precarious, or insecure; this, perhaps with the exception of a line of studies dealing with contract labour in global value chains, (see, for example Barrientos, 2008 and Duran-Palma & Lopez, 2009). Looking beyond Australia, academic research, particularly in Europe and Great Britain, have tended to be quantitative studies of structural disadvantage in youth labour markets and in the employment of women (for example, Flecker & Meil, 2010); but there has been little attention devoted to examining the spread of independent contracting into non-traditional types of work.

Independent contracting involves a commercial contract for services between a principal contractor and a subcontractor. The legal relationship is regulated by common law and, since 2007, in Australia, by the Independent Contractors Act. This Act does not offer guidance in distinguishing legal and sham contracting (ABCC, 2010). Independent contracting, in principle, does not connote anything illegal or even dubious. In Australia, the Independent Contractors Association and conservative think-tanks such as The Institute of Public Affairs, champion the benefits for both principal and contractor in this mode of engagement (http://www.contractworld.com.au/). Some workers, particularly those with specialist skills, or skills that are in short supply, may enjoy superior returns by choosing this mode of working. For some employers, the choice to use contracting may well be imposed by market pressures (ABCC, 2010). That said, there has been increasing concern about the use of contracting in Australia. Of particular concern has been the effect of evasion by employers of their responsibilities to employees and others, such as to pay payroll tax, workers' compensation premiums, employee entitlements (such as annual and long service leave) and superannuation. A recent report from the ABCC advises that, in 2010/2011, it launched 134 investigations into sham contracting (representing 33% of total investigations launched in the year), and recovered approximately $240,000 in foregone entitlements (ABCC, 2011). The concern among stakeholders about the use of independent contracting, therefore, is understandable.

Estimates of the level of contracting in Australia range from 10% (Productivity Commission, 2001; ABS, 2010) to 27% of the workforce (Day, 2005). Self employment has been a feature of some professions such as engineering, management consulting and IT for many years; consequently, research on self-employed contractors has tended to focus on relatively high skilled work performed by educated professionals who make informed choices to leave paid employment and work for themselves (Productivity Commission, 2001; Fitzpatrick & DiLullo, 2007). However, for a growing number of people working as independent contractors, the choice to engage in this work arrangement is imposed by virtue of the contracting out of work that was hitherto done in house. This includes relatively low skilled, low paid work in cleaning, construction, transport, information services, personal services and maintenance (Russell & Thite, 2008).

Since 2008, the Australian Bureau of Statistics has been reporting on forms of employment, with specific data on the use of independent contracting and labour hire arrangements. There have been two major government inquiries in recent years that have examined this issue--the House of Representatives Standing Committee on Employment, Workplace Relations and Workforce Participation (Commonwealth of Australia, 2005), and a Senate inquiry into the Independent Contractors Act 2006 (Commonwealth of Australia, 2006). Both of these inquiries canvassed the possibility of inappropriate use of independent contracting, but failed to secure substantive legislative amendments to afford minimum protections to low paid contract workers, beyond the remedies available through the common law and commercial law. This was discriminatory, notwithstanding serious concerns raised by peak bodies representing contractors, such as Owner Drivers Australia, that the removal of protections afforded by State Government legislation in NSW and Victoria deeming independent contractors to be employees for industrial relations purposes (Owner Drivers Australia, 2006). Currently, there is an inquiry into sham contracting being conducted by the ABCC (ABCC, 2010) and, as noted above, the ACTU, in November 2011, has launched an investigation into what it refers to as insecure work.

Figure 1, which is derived from reporting by the ABS, provides an indication of the relative concentration and distribution of employees and contractors in Australia, as at 2009.

Figure 1 shows that, excluding the traditional contract-based work in professional, scientific and technical work, and in administrative work (such as bookkeeping), there are significant concentrations of independent contractors in the construction industry, and in transport, health care and manufacturing in Australia. According to the ABS, only 57% of contractors have authority over their work procedures.

The Office of the Building and Construction Commissioner has been investigating contracting and labour hire in the building and construction industries (ABCC, 2010). As a consequence of the ABCC's early work, in May 2011, the Australian Government announced that businesses in the building and construction industry would be required to report annually on payments made to contractors. The commercial cleaning industry was flagged as being next for closer scrutiny (Heffernan, 2011a).

[FIGURE 1 OMITTED]

The Construction, Forestry, Mining and Energy Union (CFMEU) recently published a report extensively documenting the abuse of contracting arrangements in the Australian construction industry. It found that there were up to 168,000 people employed on sham contracts in construction alone, estimated at costing $2.45 billion in lost revenue (CFMEU, 2011; Lawrence, 2011). Following recent successful prosecutions of companies operating call centres for sham contracting, the Fair Work Ombudsman has announced a broad based investigation into this practice in a range of industries, including health and beauty, cleaning and call centres (Heffernan, 2011b). There is, then, a modest but growing body of evidence regarding the questionable application of independent contracting in the Australian labour market.

Independent contracting has also been an area of increasing concern for Australia's peak union body, the Australian Council of Trade Unions, which has warned of the danger of exploitation through sham contracting arrangements (ACTU, 2011b; Lawrence, 2008); that is, workers who ostensibly, are classed as independent contractors, but who, in reality, may be regarded as employees. Academics have echoed this concern, further raising the dangers of (so-called) dependent contracting, where an independent contractor, in practice, is tied to one employer, and thus, arguably, not independent at all (Stewart, 2007). But, for business groups, the debate is settled: the common law, recent statute law, and the market, are adequate to deal with these risks (ICA, 2002; ACCI, 2005; ACTU, 2011b). Notwithstanding the assurances of business, there is concern in the community about a growing group of vulnerable workers who are 'hidden' behind the legal device of the commercial contract.

Academic research on independent contracting in respect of low paid, relatively low skill work has been limited, and we do not have a clear picture of what it is like for people to work in arrangement; the dynamics of power asymmetries that contract workers negotiate; or the extent to which contracting is being used inappropriately across industry sectors. Nor have we analysis of the links between the emergence of independent contracting in low paid tasks and theoretical frameworks of labour market dynamics.

There are several lines of research centred on independent contractors. Firstly, there are studies that have examined the use of labour contracting in global value chains, with particular reference to developing countries (Barrientos, 2008). Secondly, there are several studies that have examined contracting among professionals, such as IT workers (Bidwell & Briscoe, 2009), technical contractors (Evans, Kunda & Barley, 2004), and energy and engineering consultants (Peel & Boxall, 2005). There is, thirdly, a limited range of literature that has examined the work practices of contract workers, such as cleaners (Ryan, 2001; Campbell & Peeters, 2008), call centre workers (Russell & Thite, 2008), and agency workers (Knox, 2010). These studies have tended to focus more on structural issues related to work organisation, than on the actual experiences of workers vis a vis power and working conditions. Thirdly, there are studies of labour market segmentation, for example, youth, women, and migrants, that have alluded to the contracting, but have not addressed this work arrangement directly (Buchmann, Kriesi & Sacchi, 2010; Fevre, 2011).

The extant literature, therefore, has not theorized, specifically, the emergence of a class of vulnerable workers who are engaged in independent contracting. The next section of the paper attempts to address this gap.

THEORIZING THE GROWING USE OF INDEPENDENT CONTRACTING

The growth of independent contracting involving low paid, relatively low skill work may be traced back to the political economy of the labour market amidst the regeneration of capitalist production norms. The economic rationalist policy prescriptions of the 1980s and beyond saw a strong focus on efficiency, flexibility and economy. These prescriptions were associated with experiments in outsourcing, contracting out and offshoring. The constructs of core and peripheral workforces were drawn to give effect to the call for greater flexibility in production and employment, underpinned by changes to the regulation of employment. Furthermore, the globalization of production and the disintegration of production have seen structural changes in labour markets worldwide, which, accompanied by increasing income inequality, have led to growth in a range of low paid, low skill jobs filled often by people moving many thousands of miles from their home countries to take advantage of these opportunities. The weakening of trade unions has meant that there has been little or no resistance to these developments, which have often been fostered by business-friendly governments.

HR architectures, associating modes of employment flexibility with modes of HRM governance, has been one of the theoretical frameworks giving expression to these developments in the political economic context of business. Applying the constructs of core and peripheral workforces, within the resource based theory of the firm, authors such as Lepak and Snell (2002) proposed four sets of employment-HRM practice configurations relating to knowledge-based employment, job-based employment, contract work, and alliance/partnership. Uniqueness and strategic value to the objects of the enterprise were the anvil upon which the four major modes of engagement were cast. In this schema, contract work referred to relationships in which external individuals are contracted to perform tasks with limited scope, purpose, and/or duration. Firms might not intend to hire these individuals on a full-time permanent basis but need their skills for specified tasks (Lepak, Takeuchi & Snell 2003, p. 683).

Low cost and higher flexibility was the name of the game in this category. As Figure 2 illustrates, the use of contracts was recommended for work that was of low uniqueness and low strategic value.

In regard to the vulnerability of workers, the implications of this kind of structural division of the labor force may be comprehended using dual labour market theory, notably, the construct of labour market segmentation (Doeringer & Piore, 1971; Reich, Gordon & Edwards, 1973). Emerging in the 1960s with Doeringer and Piore's seminal work on internal labour markets, dual labour market theory, in essence, argues that the economy may be divided into good and bad jobs, depicted in the notion of primary and secondary labour markets. Structural barriers between primary and secondary labour markets seem to consign workers in secondary labour markets to penury, if not poverty. Though not without its critics, this theory has been used to investigate nonstandard and contingent work arrangements (Blank, 1998; Gonos, 1998; Kalleberg, Reskin & Hudson, 2000).

Doeringer and Piore (1971) argued that:

[T]he labour market is divided into a primary and a secondary market. Jobs in the primary market possess several of the following characteristics: high wages, good working conditions, employment stability, chances of advancement, equity, and due process in work rules. Jobs in the secondary market, in contrast, tend to have low wages and fringe benefits, poor working conditions, high labor turnover, little chance of advancement, and often arbitrary and capricious supervision (1971, p. 165).

Others, such as Reich, et al (1973) and Bluestone (1970), developed more fine-grained typologies of dualism that proceed from similar analyses and assumptions to those of Doeringer and Piore. Batt, Holman and Holtgrewe (2009) and Taylor and Bain (2001) have applied dual labour market theory to call centre workers. Doellgast, Batt and S0rensen (2009) examined the use of subcontracting and other forms of contingent work, specifically, within the lens of labour market segmentation. Their work is contextualised in the liberalization of production and markets, and the weakening of trade unions in Europe.

The key point made by dual labour market theorists for the present discussion is that inequality and poverty are shaped by structural deficiencies in the creation and allocation of jobs in the labour market, rather than the endowments of individuals. Drawing together the theory of HR architectures and dual labour market theory, we can analyse the emergence of certain types of independent contractors as vulnerable workers.

Unlike the traditional, professional contractor who initiates the shift from paid employment to self-employment, we are now seeing the emergence of a class of work, driven by employers, that externalizes certain peripheral tasks, such as cleaning, transport, call centre operations and certain building and construction tasks. As the single case study below illustrates, when removed from the purview of labour law and union protection and placed within the commercial law, these tasks need not be guided by awards or industrial agreements, and can be purchased at low rates, with little or no benefits or protections. Here, the world of the independent contractor begins to resemble the secondary labour market, notwithstanding that these are not formal 'jobs' within paid employment.

It may be argued, therefore, that the phenomenon of the low paid, relatively low skill independent contractor in certain contexts is a construction of the capitalist project to reduce the cost and risk associated with the employment of labour. In so doing, the ranks of those in the secondary labour market are swelled and income inequality in society is exacerbated.

IMPLICATIONS AND ISSUES FOR RESEARCH

Clearly, there is a need for more extensive analysis of the way that independent contracting is applied, particularly in respect of low-paid, low skilled work. Even on the relatively limited evidence available, there is growing concern amongst governments, unions and academics regarding the spread of independent contracting into non-traditional areas. The discussion in this paper raises several implications and issues for further research.

The existing regulatory framework in Australian industrial relations provides for review mechanisms, notably, the Office of the Fair Work Ombudsman that will investigate alleged cases of sham contracting and institute remedial action. However, the reality for some people working in independent subcontracting is that they lack the power, the resources and perhaps the will, to raise their concerns publicly. This may be due to a lack of information, the lack of a perceived viable alternative to this form of work, and, simply, fear of reprisal.

A key implication, therefore, is that arguments relating to subcontractors' willingness and capacity to bargain with principal contractors may be overstated. The claims by unions that at least a minimum level of protection for subcontractors is needed may indeed be credible. The presence of union scrutiny would at least provide a basic level of assurance to subcontractors that sham contracting arrangements can be brought to account, without necessarily exposing individuals to the risk of harassment or termination. Recently, unions have sought to introduce provisions in enterprise agreements insisting that independent contractors be afforded the same core set of conditions as for equivalent full time workers. This is being resisted by employers. It seems important that some form of collective voice be available to support the application of self-employed contracting. It is curious that social institutions such as this are ordered at the margin, at the individual level, when we know that power imbalances may make genuine and mutual choice unrealistic.

There is certainly a need for further research in the area of independent contracting in Australia. At this point, there is limited empirical data on the level and distribution of this practice, and even less data on the legality of its application. We also know very little about the real impacts of independent contracting on low paid workers.

From a theoretical perspective, there is a need to unpack the casual mechanisms whereby this type of work arrangement may exacerbate secondary labour market characteristics; the extent to which there is mobility and turnover in this type of work; and, fundamentally, the extent to which there may be commonality in the structural segmentation of people working under this arrangement in different sectors.

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Chrys Gunasekara

Charles Sturt University
Figure 2: Human Capital Characteristics and Employment Modes

Human Capital Characteristics and Employment Modes *

             Quadrant 4:              Quadrant 1:
             Alliances /              Know ledge-Based
High         Partnerships             Employment

             Collaborative-Based HR   Commitment-Based HR
Uniqueness   Configuration            Configuration

             Quadrant 3:              Quadrant 2:
             Contractual Work         Job-Based
             Arrangements             Employment

Low          Compliance-Based HR      Productivity-Based HR
             Configuration            Configuration
             Low                      Hish

Strategic Value

* Adapted from Lepak & Snell (999)
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Date:Apr 1, 2011
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