Employers are now treating white-collar workers, including receptionists in doctors' surgeries, like independent contractors to avoid paying them their entitlements, a Senate inquiry has heard.
In a submission to the Senate inquiry on the ways businesses are sidestepping fair work laws, the Legal Aid Commission of NSW claimed sham contracting is "rife" in low-skilled and low-paid industries including cleaning and construction.
But it was also now starting to see low-paid white-collar workers missing out on their entitlements because employers had treated them like independent contractors.
"We are now seeing low-paid white-collar workers like receptionists in doctors' surgeries who have been told to acquire an Australian Business Number (ABN) and invoice their employer," the submission said.
Legal Aid said it had found employers and their advisers had become "more sophisticated in their attempts to style what is in truth an employment relationship as an independent contracting relationship".
Workers are often engaged under a written, independent contracting agreement that states no employment relationship is created. The agreements also say workers can outsource their job to anyone else and have freedom in how to perform their job.
"When these workers come to Legal Aid NSW they tell us that because of the practical power imbalance between themselves and the 'employer', they did not really have the independence that their contract indicates that they have," the submission says.
"Whilst the court will look at the substance and not the form of the relationship, employers are making the distinction between employment and independent contracting harder to draw."
Another example of sham contracting reported by Legal Aid involved a man who had worked 9am to 5pm at an optometrist's shop for seven years before he was sacked on the spot without any entitlements.
The man had an ABN and did not accrue sick leave or annual leave but was required to contact his boss if he was sick and would not be at work.
Every day, his boss gave him instructions on what work to do and he was paid $30 an hour. He was required to invoice his boss each month.
When he was sacked without warning and without being given a reason, he was not paid his pro-rata long service leave entitlement. His employer told him he could not make an unfair dismissal claim because he was an independent contractor and not entitled to annual leave, sick leave or any notice of his termination.
Legal Aid, an independent statutory body, said it was also increasingly seeing cases of employees being required by their employers to set up a proprietary limited company. These employees included people who were illiterate and who had been told by their employer to sign papers prepared for them.
The employer arranged for the papers to be drafted and sent to the Australian Securities and Investments Commission. The employer controlled the company and underpaid the employee and avoided paying their other entitlements.
Legal Aid said it had seen cases where the employee's company employs other workers who are, "in reality, working for the original employer in a kind of sham labour hire arrangement".
"Employees are generally unaware of the consequences of moving from an employment relationship as a natural person to incorporating a company and that entity engaging in a contract of services with another legal entity," Legal Aid said.
"These workers are also generally unaware of their obligations under the corporations law or as an employer."
Legal Aid has recommended that the Fair Work Act be clarified to allow a general protections claim to be brought by a labour hire employee against the "host" employer.
It also suggested that ASIC produce simple publications in a number of community languages and require individuals to view the information before being able to obtain an ABN or incorporate a company.
A large number of labour hire employees had also been hired on a casual basis and therefore not entitled to a redundancy payment.
Legal Aid said labour hire employees were not adequately protected by unfair dismissal laws and were significantly more vulnerable to unfair treatment.
"Labour hire employees have very limited access to unfair dismissal remedies when their assignment with the host comes to an end, despite this often resulting in the end of steady work that they may have been doing for many years," Legal Aid said.
"Legal Aid NSW sees many young people on working holidays who have been underpaid by their employer. They report non-payment of their wages, as well as bullying, which can be particularly challenging when the young person is working in a remote location.
"We know from our practice experience that non-payment of short-term employees is a business model for some small businesses."
In another submission, Jobwatch Employment Rights Legal Centre said employers should be responsible for delivering training to apprentices and trainees. It says posting a trainee or apprentice to a host company under a labour hire arrangement should be made unlawful under the Fair Work Act.
Maurice Blackburn Lawyers made a submission that said it supported the introduction of a licence scheme for the labour hire industry. This would help ensure labour hire providers were able to meet their employment obligations.
In its submission, the Uniting Church of Australia Synod of Victoria and Tasmania supported the idea of introducing a licensing scheme, especially in industries where there is evidence of human trafficking or forced labour including agriculture, food processing, construction and hospitality.
The Housing Industry Association submission said the impacts of labour hire and contracting in the residential construction industry were "overwhelmingly positive".