The Fair Work Ombudsman website requires JavaScript. Please enable JavaScript on your browser.

Subcontracting

The FWO doesn’t hold a view on the respective merits of operating models such as insourcing or outsourcing. The FWO’s interest extends only to whether a particular model is lawful and its impact on compliance in the labour supply chain.

However, the FWO’s experience is that multiple levels of subcontracting can create conditions which allow non-compliance to occur. The reasons for this include the pressures of multiple businesses taking a profit as additional subcontractors are added to the contracting chain, and the perceived ability to hide non-compliance within convoluted business structures.

Case Study

Contractor A operated as a principal contractor in Tasmania for cleaning several Woolworths sites. The inquiry encountered significant difficulties in determining the identity of the employer of labour at each of the sites.

There were a number of sites where there was more than one level of subcontracting occurring, with both the principal contractor and subcontractors adding additional levels to the labour supply chain at different times. As an example, at some sites, Contractor A subcontracted to a wholly owned subsidiary, Contractor B. Contractor C (not related to contractors A or B) acting as a ‘middle player’ then subcontracted to Contractor D. Contractor D then paid an employee on behalf of all workers, and that employee then paid other employees in cash. Contractor D also engaged some purported independent contractors who were really employees.

The multiple layers of people involved in the payment of workers and the insufficient records provided to the inquiry made it difficult for the FWO and the supermarket to identify the true employer in some instances.

Figure 2: Case study labour supply chain

Tasmanian supermarkets inquiry - Figure 2: Case study labour supply chain

Case Study

Contractor A provided employee time and wage records to the inquiry following two separate notices to produce documents. They indicated all cleaners had received their minimum entitlements.

Comparing the records with the relevant Woolworths’ visitors’ books and employer bank records (which showed payments to employees) revealed significant discrepancies in worker identities. There were also four levels in the labour supply chain. The inquiry subsequently found that Contractor A provided false records to disguise further subcontracting of labour, which was a clear breach of the Woolworths contract terms.

Contractor A’s director provided admissions about the false records to the FWO. However, none of the cleaners from the bottom of the supply chain were willing to ‘go on the record’ regarding their pay or entitlements, the identity of their employer or the agent who actually employed and paid them.