Precarious work structures foster parasite economy that cut workers’ pay

In the lead up to the federal election, Woolworths got lucky.

On June 26 the Fair Work Ombudsman (FWO) published a scathing report about Woolworths’ mistreatment of its underpaid trolley workers. The timing of the report – one week out from the end of a marathon election campaign – guaranteed scant press coverage. Woolworths was spared the sort of ignominy that 7-Eleven has suffered after exposure of its own wage fraud scandal.

The workplace watchdog’s report excoriates Woolworths for its mistreatment of the workers caught up in “complex labour supply chains with networks of corporate structures and intermediaries to facilitate cash payments, recruitment of vulnerable workers and production of false records”. At the bottom of the Woolworths supply chain are workers paid as little as $10 an hour.

Eighty per cent of sites investigated were found to violate workplace laws. With more than a passing resemblance to the practices at 7-Eleven, there are doctored or non-existent pay records, coercion of vulnerable workers and the involvement of shady contractors.

The company has snubbed the FWO’s repeated requests to assume legal and moral responsibility for the mistreatment of the workers. Under existing workplace laws, Woolworths, like 7-Eleven, isn’t liable for the wage fraud and it knows it.

US academic David Weil has coined the term the “fissured workplace” to describe the phenomenon of large businesses shedding their employees and instead sourcing labour through ” a complex network” of other entities, creating intermediaries between the workers and the business profiting from that work.

The global phenomenon describes a range of different structures and business strategies including franchising, outsourcing, labour hire, Uberisation, contracting, sub-contracting and labour supply chains.

In many cases, this has meant companies reclassifying those who were once known as employees as independent contractors instead.

According to this alternative reality, the people you see delivering pizza on bicycles are not pizza delivery workers but business people; in the business of providing food delivery services by bicycle. The workers may not have a business plan, any capital or employees to deploy but Deliveroo and Fooderoo will insist that the price of the job is that they have an ABN and can pretend to be entrepreneurs.

Precarious work structures, constructed by sophisticated lawyers and accountants, allow businesses to avoid employment laws and thereby cut labour costs – usually by about one-third. Standard wage rates and other employee entitlements, including penalty rates, sick leave and severance pay that have been achieved by employees and their unions over decades can be eliminated with remarkable ease.

The same lawyers and accountants are also behind the elaborate tax-avoidance structures adopted by multinational corporations. Instead of subverting employment laws, those schemes subvert tax laws.

Weil describes the dramatic effect on workers as “employment itself becomes more precarious, with risk shifted onto smaller employers and individual workers, who are often cast in the role of independent businesses in their own right”.

Under existing workplace laws, Woolworths, like 7-Eleven, isn’t liable for the wage fraud and it knows it.

Precarious work structures also damage the broader economy. When workers are paid below minimum wages, they don’t earn enough to contribute to tax revenue or spend money in the real economy. They are more likely to fall back on the safety net of social security than other workers. In this way, our taxes subsidise precarious work models. In the angry words of US venture capitalist Nick Hanauer: “The real economy pays the wages that drive consumer demand, while the parasite economy erodes it.”

A procession of recent wage scandals implicating Coles, Australia Post, Myer, Pizza Hut, Spotless, Grill’d, 7-Eleven and Woolworths underline the scale and systemic nature of the malaise.

The good news is that this situation is not inevitable. Companies like Woolworths and 7-Eleven will continue to exploit opportunities to cut their wage bill as long as our outdated employment laws permit them to do so. Wage fraud, like aggressive company tax avoidance, is a product of regulatory failure.

The Economist, argues that: “The fundamental problem is that in America, as in many other rich countries, employment law has failed to keep up with the changing realities of modern work.”

In the lead up to the election, another remarkable political development flew under the radar. In response to the 7-Eleven scandal, both major parties released policies that would impose legal obligations upon franchisors for the underpayment of workers by their franchisees in some circumstances. A comprehensive legislative response is overdue.

Effective law reform is not difficult. Existing workplace health and safety laws recognise that as businesses adopt precarious work models, the risk of undermining the health and safety of workers escalates. An array of entities, operating in the one workplace means a greater probability of buck-passing, cutting corners on safe work practices, poor maintenance, and inadequate supervision. Under the laws, legal compliance responsibilities are imposed on all of the players, big and small, so that the company at the top of the supply chain owes duties to the workers at the other end.

This approach can be replicated by amending the Fair Work Act. If Woolworths and 7-Eleven were required to share legal responsibility for the wages paid not only to direct employees but also to workers sourced from intermediaries, the parasite economy would rapidly dwindle.

Original article appeared in the Sydney Morning Herald.