The living wage crisis in Australian industrial relations

ABSTRACT

The recent proliferation in Australia of systematic wage underpayment, or wage theft as it is known in the US, is stripping workers of the ‘living wage’, once a cornerstone of Australia’s industrial relations system. This paper considers the dimensions of this phenomenon and some of the policy recommendations for regulatory reform to reduce employer non-compliance with minimum wage standards. The paper concludes with proposals for other measures that may also help arrest what is becoming a living wage crisis and restore fair and reasonable wages to workers, regardless of employment arrangement or status.¹

Paper

Not long after federation, Australia’s industrial relations system cut its teeth with the establishment of the ‘living wage’ which was to guarantee a basic wage that would bring dignity to the fledgling country’s workers. There were always employers who failed to comply with the legal minima of wages and conditions, but the basic standard largely held. However, in more recent years, coverage of a living wage through the workforce appears to have taken a battering. This address considers the growing proliferation in Australia of a systematic underpayment of wages, or ‘wage theft’ as it is known in the United States.

Increasingly, many workers in Australia are being paid less than the minimum wage applicable to their occupation and age.² In a growing number of cases, workers are receiving not only less than the national minimum wage but also less than half the basic modern award rate in their sector (e.g. workers in 7-Eleven franchises). In other cases, once accommodation and transport costs have been deducted, some workers have received no wage at all (e.g. Fijian horticultural workers on seasonal work visas).

Some of the most prominent examples have been reported extensively in the media following investigations by The Sydney Morning Herald newspaper and ABC 4-Corners (see Ferguson 2016; Ferguson and Christodoulou 2016; ABC 4-Corners 2015). Some have been perhaps less conspicuous, coming to light through academic research, compliance actions by the Fair Work Ombudsman and as a by-product of media investigations. When we look at the whole picture of who is affected and where and how this is happening, it is clear that we have a major problem in Australia – a crisis characterised by a widening failure of employers to comply with minimum wage standards and the steady annihilation, in practice, of the concept of a living wage in Australia.

The dimensions of the problem

Underpayment of wages is not, in itself, a new phenomenon. Australia’s industrial tribunals have always dealt with a steady flow of underpayment claims against employers. However, the recent proliferation of wage underpayment, or wage theft, is occurring across a range of occupations, labour market segments and business models. It appears to be spreading through systematic adoption. Underpayment has been reported among the following:

• Workers on various forms of migrant work visa, including 457 and 417 visas, and international student visas. Examples include the Korean backpackers picking carrots in Queensland, Malaysian fruit pickers working for farmers contracted to provide fruit to Coles, but hired through labour hire contractors, and the Fijian pickers on seasonal work visas, part of a federal government program involving our Pacific neighbours, who often received no wages at all after ‘costs’ were deducted. In addition, Stephen Clibborn has shed light on international students and their experiences working for less than $11 per hour in restaurants and cafes (for instance, Caldwell 2016).

• Retail stores including 7-Eleven, Caltex station stores, Coles and Woolworths. In the retail sector, underpayment includes not only those working directly in retail stores (e.g. shop assistants) but also those working in organisations lower in the supply chain (e.g. trolley collectors, Baiada chicken factory workers and contract cleaners at Woolworths) (Ferguson and Christodoulou 2016; Nov 3; Toscano 2016a).

• Fast Food operators such as KFC, McDonalds and Hungry Jacks have also attracted attention for underpayment (Schneiders and Millar 2016).

• Franchise organisations have come heavily under the spotlight (including many of the retail and fast food operators), particularly with the media investigation into 7-Eleven franchisors. It is perhaps not as well known that franchising accounts for about 4% of Australian businesses, including 1200 franchising brands and 70,000 operating franchisees in Australia. These businesses employ a significant workforce, upwards of 460,000 direct employees (Franchise Council of Australia, 2017).

• Digital/App job platforms such as Uber, Deliveroo and job ‘auction’ sites such as Airtasker. These are typically cast as being engaged in the ‘share’ or ‘community’ economies, a specious characterisation as their work has nothing to do with sharing or community and everything to do with the market. It is important to note several points here. First, with digital job auction platforms such as Airtasker, it is the job seeker who pays for the work (typically 15% of the rate charged) not the job provider, and job seekers cannot specify an hourly rate but, rather, must quote a rate for completion of the job which may magnify the prospects of their real wage falling below legal minima. Increasingly, also, platforms such as Airtasker are seeking business clients who advertise ‘tasks’ in place of employing staff, undermining labour demand for non-precarious employment arrangements (Unions NSW 2016).

• Cash-in-hand workers are often underpaid on the basis that they are not reporting their income for tax purposes. Increasingly, this is the case for casual workers in the retail, hospitality, cleaning and trades areas. In November 2016, the Australian Tax Office estimated that 1.6 million businesses are paying workers cash-in-hand and that it only has the resources to monitor 12.5% of these each year (Khadem 2016).

• Labour Hire Companies. Recently, the Victorian Inquiry into the Labour Hire Industry and Insecure Work (Industrial Relations Victoria 2016), chaired by Anthony Forsyth, confirmed there is substantial evidence of ‘rogue’ labour hire agencies and related arrangements which frequently engage in breaches of awards and other regulatory requirements.

• Sham contracting arrangements. ‘Sham contracting’ (also known as disguised employment and false self-employment) refers to those arrangements where workers have employment-like characteristics, but are nonetheless engaged as independent contractors, thus lacking the entitlements of ‘employees’. These are associated with labour hire companies and also migrant visa workers, but are also alive and well in other sectors – such as bicycle delivery services, call centres and charity collectors such as Amnesty International and Wesley Mission (Christodoulou 2016).

• Unpaid work experience and internships. While internships are an increasingly common element of tertiary education programs, it appears to be ever more common that those completing university degrees and vocational training accept unpaid work experience in order to increase their employability, however (un)successful their efforts at converting unpaid work into paid employment may be (Oliver et al. 2016, 2017).

This underpayment of wages is widespread and appears to be growing apace. For many years, we had an historic compromise in Australia, the key industrial relations parties, including the state, agreeing to provide a living wage across the workforce, given effect through the award system. Employers did not necessarily embrace this heartily, but at the least, there was a grudging employer acceptance, in part, because awards served a useful purpose in taking wages out of competition. The broad story of how, from the mid-1980s, the scope of that award system was gradually dismantled is well known. Early enterprise bargaining under the ‘award restructuring’ system, individualised agreements under Work Choices and then workplace (enterprise) bargaining under the Fair Work Act all played a part. Without going into detail about cause and effect (which time does not allow), accompanying this was a declining union coverage, linked in part to the legislative restrictions on union activity under those laws, such that the system of wage setting became ever more de-collectivised and individualised.

As most IR academics predicted when enterprise bargaining emerged, a de-centralised system would and did disempower workers and facilitate a widespread diminution in working conditions. In addition, however, as Hardy (2011, 117) observed, ‘in Australia, there is evidence to suggest that minimum employment standards are being regularly contravened, routinely ignored or both’.

What we are seeing today, in terms of extensive employer non-compliance with the legislated minimum wage, and registered, legally enforceable awards and agreements, is the result of this de-centralisation and associated de-collectivisation of bargaining. It is also the result of other changes big and small. A non-exclusive list of these factors include internet technology (enabling online auctions for work and engagement by app), the globalising workforce which includes flows of migrant workers who lack knowledge of their entitlements in the host country (e.g. Fijian grape pickers, international students), the legal strategies of employers to evade employment law requirements altogether through alternative contracting arrangements and increasingly complex supply chains in which small operators are dominated by a few key mega-corporations that determine price.

These elements have emboldened wilful non-compliance among some employers. They have also enabled the obscuring of some non-compliance in the rhetoric of innovation: internet job auction sites such as Airtasker and bicycle delivery companies such as Deliveroo are cast as ‘disrupters’ in their business and employment models, ostensibly a positive attribute because of the connotations of innovation (Walker and Kaine 2016).

Current approaches to the problem?

In 2016, there was substantial media, government and academic investigation of this wage crisis in relation to particular groups of workers. In addition to the Sydney Morning Herald/ABC Television investigations into 7-Eleven, seasonal migrant agricultural workers and other groups, research was undertaken by the Victorian Government Inquiry into Labour Hire and Insecure Work (Industrial Relations Victoria 2016), the Federal Government Migrant Workers’ Taskforce and the Senate Education and Employee References Committee into temporary work visa holders, the latter report loudly titled ‘A National Disgrace: The Exploitation of Temporary Work Visa Holders’ (Senate Committee 2016). In October 2016, the federal government announced the establishment of the Senate Standing Committee on Education and Employment Inquiry into Corporate Avoidance of the Fair Work Act.

The Fair Work Ombudsman undertook a number of actions on systematic wage underpayment including inquiries into practices at 7-Eleven, the Harvest Trail and the chicken company, Baiada. Unions NSW investigated Airtasker, with a view to negotiating improved worker protections (see Unions NSW 2016).

A number of AIRAANZ colleagues have completed detailed and insightful research projects concerning particular occupations and workforce groups in recent times, with many represented in papers presented at this Conference. Some of this research includes the work of Oliver et al. (2016) on unpaid work experience/internships, Stephen Clibborn (2016) on international students, Tess Hardy (2016) on the franchise sector, Kaine et al. (2017) on the gig economy and Walker and Kaine (2016) on deliveroo and uberisation. My apologies if I have not mentioned your research.

In terms of proposals to arrest the problem, recommendations from government inquiries and research reports have tended to focus heavily on two lines of policy response: first, legislative change and second, cultural change. The legislative change proposals would involve amendments to industrial law, migration law, company law and other legislation. The proposals for cultural change rest heavily on developing a culture of compliance through voluntary forms of regulation adopted by industries and organisations and through administrative arrangements by which the state guides employers to meet required standards (also referred to as meta-regulation) (Freiberg 2010). Here, there is a heavy emphasis in recommendations on supply chain regulation which would make capital at the top of the chain responsible (as, for instance, does the National Heavy Vehicle Law), including franchise parent companies. Table 1 maps the key types of changes being recommended, including legal, meta and voluntary regulation, against the regulatory target of the mechanism – workers, employers and supply chain participants.

Table 1. Key types of regulatory change currently proposed to improve wage compliance.

	Legal regulation	Meta-regulation: culture of compliance	Voluntary regulation
Workers	Specific protections for workers e.g. Whistleblower protections National compensation system for underpayment survivors Changes to visa regulations re: hiring, wages and conditions, complaint protections		Establish cooperatives and mutual organisations – e.g. the new cooperative taxi-alternative venture, Juno which may provide an alternative to uberisation (Walker and Kaine)
Employers/ contractors	New regulations; stronger/more targeted sanctions e.g. Advance warnings Licencing systems Changes to employer responsibilities under visa laws (stronger) Criminal sanctions Director liabilities and disqualification	FWO enforcement of law via administrative sanctions such as enforceable undertakings, proactive compliance deeds, etc.	Industry and company codes of practice Accreditation and market-oriented incentive schemes, e.g. awards; market concessions; access to markets (government contracts)
Supply chain	Comprehensive law engaging the chain of responsibility in an industry (e.g. National Heavy Vehicle Law) which extends to companies at top of supply chains, franchisees and labour hire companies.	FWO building a supply chain ‘culture of compliance’ through enforceable undertakings, etc. throughout the supply chain	Industry codes of practice Accreditation and market-oriented incentive schemes, e.g. awards; market concessions; access to markets (government contracts)

These three spheres of regulation all contain mechanisms which variously motivate and deter employer non-compliance with minimum wage standards. However, even if proposals are implemented in their entirety, in terms of ending wage theft there would remain real hurdles. These include the following:

• The limitations to voluntary self and industry regulation:

  We know that, with industrial relations, voluntary regulation is not sufficient. Industrial relations is a policy field for which, following regulation theorists, such as Saurwein (2011), Gunningham (2011) and others, strong state regulation is essential. While many employers may be obedient and even willing to observe the rules, in pursuit of competitive advantage, there will always be those who are recalcitrant.

• The limits of legal and meta-regulations (including a ‘compliance culture’):

  The effectiveness of these forms of regulation is bounded by the reach of enforcement measures and sanctions. Illustrating the barriers to effective enforcement, recently, the Senate Report titled ‘A National Disgrace’ identified the following limits pertaining to actions by the Fair Work Ombudsman (FWO). In recent years, a key focus of the FWO has been on building a culture of compliance with particular employers and through supply chains through use of administrative sanctions such as 'compliance partnerships,' enforceable undertakings and proactive compliance deeds (for instance, see Damcert 2016). But the FWO is limited in its current capacity to change behaviour. As the Senate Report noted, the Ombudsman has ‘woefully inadequate resources’, has limited power to compel cooperation and assistance of employers (etc.) with inspectors and faces illegal phoenix activity, whereby companies too commonly liquidate and wind up operations once they are brought under investigation. For the underpaid workers involved, litigation typically takes a year to resolve, a lack of accurate employment records makes it difficult to evidence underpayment, and workers may face the threat of deportation. Further, even if a company/director is fined, and this is distributed amongst workers, typically they remain underpaid as the caps on fines are so low - of the fine is never paid (Senate Committee (Senate Education and Employment References Committee) 2016; Toscano 2016b).

• Limitations with sanctions:

  There is little research on the effectiveness of sanctions provisions under industrial law. This means we have little real knowledge about how various sanctions work to encourage compliance and to deter non-compliance with wage standards. Currently, the Australian industrial law regime follows closely the Responsible Regulation model conceptualised by Ayres and Braithwaite (1992) which centres on the idea of an enforcement pyramid. The pyramid contains ever more severe sanctions, but steers clear of a ‘big guns’ approach, holding back from the big penalties so as not to upset the ‘good guys’. In the industrial relations context, this relies on the willing or obedient compliance of most participants, with heavy penalties reserved for only the most recalcitrant.

Given the level of wage underpayment (or theft) occurring, the following questions need consideration. First, are the mechanisms currently available in the regulatory pyramid sufficient to reach those at the top of supply chains, lead franchisors and recalcitrant, or simply opportunistic employers? Second, are the administrative (supervision) style orders and fines set too low? Should criminal penalties be considered for recalcitrant operators under industrial law, as they have been under migration law, consumer law, corporate law and occupational health and safety law?

Where do we go from here?

While my focus has been on mapping the scope of the proliferation in wage underpayment (theft), no analysis of this crisis would be complete without some discussion of the broader politico-economic context contributing to it. Given space constraints, however, I will just make few comments about the context which have a particular bearing on my final suggestions about where we might go from here to arrest the phenomenon.

We are all familiar with arguments concerning the role that neoliberalist ideology has played in shifting the industrial relations frontier of control. It is important to note the impact of the dominance of the financial sector and shareholder interests on this frontier. As Dumenil and Levy (2011) argue, neoliberal capitalism has not only dismantled social protections but also delegitimised the management class, handcuffing the management class to serve short-term shareholder interests and financial sector objectives. Put simply, financial capitalism is not allowing managers to manage.

In addition, Merkel (2013) argues that with the rise of neoliberalism, rather than governments making markets conform to democracy, democracy has become market-conforming. In their eagerness to serve capital, governments have failed to support the protections and redistributions in society that characterised the post-war period to the late 1970s. As a consequence, countries such as Australia have experienced the disempowerment of representative organisations and an accompanying diminution in the social contract.

The outcome has been a series of market distortions that confound the neoliberalist rhetoric of the free market. These distortions include re-regulation and increased regulation (under the misnomer of de-regulation), excess market power, market instability and uncertainty and growing structural inequality. These are distortions often associated with market failure rather than success. They have emboldened some employers towards ever-more avarice, including the systematic wage theft discussed here.

This brings me to some suggestions about the strategies for arresting the wage underpayment crisis. My suggestions are additional to the recommendations already made in the academic papers and government reports mentioned earlier. However, these suggestions reflect also the concerns expressed about the hurdles to effective regulation. In these circumstances, key stakeholders have a big job ahead. I would argue this involves:

• Engaging those employers who are ‘willing’ to comply or at least obey the rules, in the discussion. After all, this is a crisis that affects many employers/hirers of labour as well as workers: the compliant employers are being undercut in the cost of labour, affecting their own economic viability. The historical compromise of employers, labour and the state ‘took wages out of competition’. Wages are now back in competition. Referring to sham contracting or disguised employment, the Australian Chamber of Commerce and Industry recently observed that ‘legitimate employers are disadvantaged directly by having to compete against other firms whose costs are reduced via an unlawful means’ (ACCI 2016, 5) Employer groups, in particular, need to show real leadership by acknowledging this problem and engaging in discussion on solutions.

• Building a dialogue both in the community and among policymakers and stakeholders about the development of a new historical compromise: a new wage safety net for workers. There are several contemporary examples of such a dialogue around the world, a dialogue concerning the basic fairness and the value to society of a wage that allows people to afford the basics of a dignified life. Examples include the Justice for Janitors campaign in the United States, the global decent work campaign and the UK living wage legislation.

• Building knowledge about what regulations work, how and why. To design effective regulation, policymakers need the knowledge that evidence-based research provides on the effectiveness of different forms of regulation and sanctions in shaping compliance behaviour among employers in relation to workers’ wages and conditions. This would also include developing an evidence-based appreciation of the real level of resources that regulators require to enforce compliance.

• Finally, solving the wage crisis requires that workers are better informed about their wages and other entitlements. We need to establish avenues through which workers, including non-English speaking and non-literate workers, are informed about their entitlements as a matter of course, in such a way that employers, also, know that workers are so informed.

Additional information

Notes on contributors

Louise Thornthwaite

Louise Thornthwaite works in the Department of Marketing and Management at Macquarie University, Sydney. From February 2016 to February 2017, she was President of the Association of Industrial Relations Academics of Australia and New Zealand (AIRAANZ).

Notes

1. This article is an edited version of the Presidential Address to the 31st Conference of the Association of Industrial Relations Academics of Australia and New Zealand (AIRAANZ), held in Canberra, 8–10 February 2016.

2. Minimum legal wages are established through a three-tier system in Australia. The Fair Work Commission determines a national minimum hourly wage each year. In practice, this is supplemented by the second tier, modern award wage rates (determined by the FWC) and, the third tier, rates negotiated in enterprise agreements (which are registered by the FWC) where these apply. Junior employees (workers under 21 years of age) are entitled to a percentage of the adult wage which is scaled upwards from the age of 16.