Labour hire licensing and Councils in South Australia: be ready by 1 September 2018

From 1 September 2018, any entity which “provides labour hire services” in South Australia must be licensed under the new Labour Hire Licensing Act 2017 (LHL Act) (or at least have applied for a licence).

Many Councils are presently involved in human resources relationships (the nomenclature includes “service sharing”, “secondments” and various other terms) which may satisfy the definition of “labour hire services” under the LHL Act. In such cases, the entity providing the worker (and paying the worker’s salary) will need a licence, or else that entity—and potentially also the recipient entity—will contravene the LHL Act.

When does one entity provide “labour hire services” to another entity?

It is useful to examine the LHL Act’s definition of “labour hire services” in full, as it contains some specific language which, in our view, will be important in determining whether or not typical Local Government relationships are covered. Section 7(1) of the LHL Act provides as follows:

A person (a provider) provides labour hire services if, in the course of conducting a business, the person supplies, to another person, a worker to do work in and as part of a business or commercial undertaking of the other person.

As an initial observation, it is clear from this definition that there must be two entities. Intra-Council secondments are therefore not covered, but virtually anything else—even the provision of a worker by a Council to a Council subsidiary—will satisfy the requirement for the existence of two entities.

The crucial part then is whether the first entity “in the course of conducting a business” provides the worker to the second entity, for the worker to perform work “in and as part of a business or commercial undertaking” of the second entity.

In our view, there is persuasive case law to support the proposition that many Council functions are neither a “business”, nor a “commercial undertaking”. The pure carrying out of a regulatory or governmental function would not, in our view, constitute either “business” or a “commercial undertaking”. However, on the other hand, it is clearly the case that various Council activities are commercial in nature. The Local Government Act 1999 in fact specifically contemplates that a Council may establish a business or otherwise engage in a commercial activity or enterprise, in the performance of its functions.

Further, the LHL Act is entirely untested by the Courts. It may be that a Court finds that the terms “business” and “commercial undertaking” should have a broader meaning than is ascribed to the terms in other legislative contexts, and therefore should indeed extend to purely governmental pursuits for the purposes of the LHL Act licensing regime. Accordingly, the assessment of whether any particular relationship does or does not attract the requirements of the LHL Act will at this point be, at best, an exercise of estimation.

Could an exception be made for Local Government?

This would be a matter either for the State Government to address by Regulations, or for the Commissioner for Consumer Affairs to address by notice in the Gazette.

Presently, the only persons who are exempt from the requirement to be licensed under the LHL Act are persons with licences under the Building Work Contractors Act 1995, Plumbers, Gas Fitters and Electricians Act 1995 or Security and Investigation Industry Act 1995.

The Act therefore presently captures all other industries, including the local government sector. The sector might therefore choose to seek an exemption from either the State Government of the Commissioner for Consumer Affairs.

One other possible outcome is that the LHL Act might simply be repealed entirely, or that its application might be further postponed while it undergoes revision. It is perhaps noteworthy that the current State Government (which was, at the time, the Opposition) opposed the LHL Act’s passage through Parliament. The LHL Act was one of the final pieces of legislation passed under the former Government, and the lead Opposition MP to speak against the Bill in the House of Representatives was the Hon Vicki Chapman MP. Coincidentally, Ms Chapman as Attorney-General has now inherited Ministerial responsibility for the LHL Act.

What happens on 1 September 2018?

If no exception for Local Government has been granted by the State Government or the Commissioner for Consumer Affairs by 1 September 2018, and if the LHL Act still exists in its current form at that time without any extension to transitional arrangements having been made, then any Council which has not obtained or applied to Consumer Business Service for a licence in respect of any statutorily covered labour hire arrangement will be in breach of the LHL Act.

Further, any Council which enters into a labour hire arrangement with an unlicensed provider without reasonable excuse will be in breach of the LHL Act. While Councils might consider that a creative re-arrangement of relationships might avoid the application of the LHL Act, this is a path which requires a degree of caution: the LHL Act also creates an offence for entering into “avoidance arrangements”.

Each of these offences attracts a maximum penalty of $140,000 or 3 years’ imprisonment for an individual, or $400,000 for a body corporate.

Councils should therefore presently be examining any relationships by which they either provide a worker to another entity, or where they benefit from the services of a worker provided by another entity. Councils should assess whether a licence may be required, and whether they want to continue those relationships.

Norman Waterhouse will closely examine the progress of the LHL Act. We would be pleased to assist with any submissions or other efforts to correspond with the State Government or the Commissioner for Consumer Affairs in advance of the commencement of the licensing regime under the LHL Act, or to provide advice upon any circumstances specific to your Council.

For more specific information on any of the material contained in this article please contact Sathish Dasan on +61 8 8210 1253 or sdasan@normans.com.au or Chris Alexandrides on +61 8 8210 1299 or calexandrides@normans.com.au.