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Submission to the Australian Competition and Consumer Commission

An Application from the Construction, Forestry, Mining and Energy Union for authorization for collective negotiations by owner-drivers with earthmoving contractors in South-East Queensland


31 October 2008



1. The nature of the CFMEU's application
Some points are needed to ensure clarity in understanding this application.
  • This application is not an application by owner-drivers for approval to negotiate collectively.
  • It is an application from the CFMEU for the CFMEU itself to be granted a licence to negotiate collectively.
In making its application, the CFMEU is not acting as an agent of owner-drivers subject to the instructions and directions of the owner-drivers. The CFMEU is seeking authority in its own right which would make the owner-drivers subject to the direction and control of the CFMEU in any collective negotiation process.

Further:
  • This is not an application for collective negotiation under industrial relations law.
  • It is an application for collective negotiation under trade practices law.
The public policy principles that apply under trade practices law are totally different to, and should not be confused with, those that apply under industrial relations law.

2. Summary of the position of Independent Contractors of Australia
Independent Contractors of Australia (ICA) is opposed to the application by the CFMEU. We are not opposed to the application out of opposition to the CFMEU itself. Rather, our opposition is based on a general principle that only organisations which themselves are direct parties to the commercial transactions being considered should have the right to make application. The transactions are their transactions and the right to control their transactions should not be allocated to external parties. We have no objection to an application by owner-drivers in their own right, with the CFMEU (or anyone else) assisting the owner-drivers and acting as an agent for the owner-drivers. That is not the case in this application.

Consequently, either the CFMEU should withdraw the application or the ACCC should reject it.

ICA would be pleased to consider, and make comment upon, an application by the owner-drivers themselves for authorization. There may well be a case for the owner-drivers to have authority to bargain collectively. But this current CFMEU application does not present the necessary information upon which to make such an assessment.

This submission is in two parts:
  • Part A considers the inappropriateness of the CFMEU making an application.
  • Part B discusses the arguments presented by the CFMEU for collective bargaining.



Part A: The inappropriateness of the CFMEU making an application

The CFMEU is applying to the ACCC for approval under the Trade Practices Act (TPA) to be able to bargain collectively on the price and other issues relating to earthmoving services in South-East Queensland (Brisbane and greater area).

This is not an application by earthmoving owner-drivers themselves. Rather, it is an application by the CFMEU for the CFMEU to effectively be granted a right over, or be given ownership of, a collective bargaining process. The application seeks to support its claim by drawing on the alleged circumstances of unidentified owner-drivers, but in doing so, fails to present any hard evidence.

The CFMEU application:
  • States that there are between 500 and 1,000 owner-drivers supplying earthmoving services in the market.
  • Says that the CFMEU has about 24 of these owner-drivers as members, but suppresses the names of these members.
  • Identifies and names 17 contracting companies who, combined, dispense the majority of earthmoving work in the greater Brisbane market.
  • Applies to have legal authority granted to the CFMEU to bargain collectively. In effect, the CFMEU is seeking to be the holder and owner of the right to bargain collectively in this market.
The application has serious flaws:
  • The identities of the alleged beneficiaries of the application (the 24 owner-drivers) are not disclosed.
  • Future alleged beneficiaries can be added without public disclosure.
  • The alleged beneficiaries would not have the legal control of the collective bargaining process which would be in the hands of a third party.
  • The applicant is not a party to the contracts which the applicant seeks to control.
  • Therefore the applicant is not in a position to be held financially or otherwise accountable for the consequences of the application.
  • The market, as described, operates in an effective manner. The applicant seeks to restrict the operation of an effective market.
  • The claim that there is a public good on the grounds of road safety is not a matter that is related to the price of the services.
  • Assertions are made about the relative bargaining position of parties which are not supported by evidence or demonstrated. These assertions are most probably unsustainable.
Summary: the public good from the application has not been demonstrated. In fact, there are good grounds for thinking that granting the application would harm the public good.

3. About ICA: The framework to our approach
Independent Contractors of Australia is an organization representing the interests of independent contractors. The application by the CFMEU refers to owner-drivers, an important component of the independent contractor sector.

ICA is structured so that membership is offered both to individual independent contractors and to those who engage them. This structure reflects ICA's general approach which recognizes that the needs of both parties in commercial contracting arrangements are of equal importance. ICA does not view the operation of commercial transactions as a 'zero sum' game in which one party loses and the other party wins. Rather, commerce is about parties involved in transactions finding mutual benefit. But this benefit between commercially engaged parties must also serve the needs of the ultimate consumer. It is this meshing of the interests of each party that drives successful market economies.

This approach is the framework within which our submission to the ACCC is made.

4. The CFMEU: The framework to its approach
The CFMEU is an organization steeped in the history and concepts of the employment relationship. The traditional approach to the employment relationship assumes contract relationships of inequality. That is, that one party controls or dominates the other and that one wins and the other loses. In fact, this concept is reflected in the laws covering employment. But it is a concept that is alien to, and unhelpful for considering, the commercial relationship. Nevertheless, this is the approach the CFMEU takes in its application. There are problems with this approach.
  • The CFMEU is not party to the commercial transactions in question, yet would own the authority to bargain collectively.
  • The CFMEU would not be a beneficiary of the outcomes of collective bargaining, but the beneficiaries (the owner-drivers) would be legally beholden to the CFMEU in their ability to bargain collectively.
  • This would result in blurred and questionable lines of accountability.
The CFMEU is confusing employment with commercial transactions. Under employment negotiations, it is common for unions to own or control the processes of negotiations. In fact, industrial relations law frequently skews authority over negotiations to unions, even though unions are not party to the employment contract between employers and employees.

But it is not appropriate for the concepts, assumptions and legalities of employment to be applied to commercial law. Employment law and regulation is about price-fixing. That is, employment regulations allow and encourage the fixing of the sale price of employee services. This is justified on the basis of the public interest. But the public interest under commercial transactions is to prevent price-fixing. This is the primary purpose of competition law---to ensure that the sellers of goods and services cannot collude to fix prices and thus disadvantage the consumer.

5. Who should make application: The collective bargaining provisions of the Trade Practices Act
The collective bargaining provisions of the TPA are intended to give the opportunity to small businesses/independent contractors to improve their bargaining power in the marketplace. Typically, the most likely scenarios for its use are in the retail sector where small retailers can collaborate to negotiate lower prices for the purchase of their wholesale goods. This would enable them to compete more effectively against larger retailers, enhancing competition and presumably improving the capacity for lower consumer prices. In this scenario, the collective bargain has the capacity to benefit the applicant (better purchasing power) and the consumer (lower prices). Competition is assisted.

The application by the CFMEU is of an entirely different nature. In effect, it seeks to fix or control the selling price of services. This has clear potential to harm competition. In such a circumstance, the applicant/s would need to prove serious dysfunction in a market to justify their application and the benchmark for proving that must be high. Further, if such an application were to be granted, there must be obvious levels of accountability applied against the holders of the right to bargain collectively under the TPA. Accountability is needed to ensure that the approved price-fixing is not used as a veil to restrict competition or to create forms of monopoly, either by accident or design.

Ordinarily it would be expected that persons who seek authority to bargain collectively would need to be the persons who would be parties to the commercial arrangements in question. This is because the lines of accountability would be clearly identifiable, as the commercial beneficiaries of the price-fixing (the owner-drivers) would be the ones with the legal right to bargain collectively.

But under this CFMEU application, accountability would be confused and difficult to isolate. The owner-drivers would allegedly benefit from the price-fixing, but the CFMEU would own and control the process of achieving it. It does not matter, as the CFMEU says in the application, that a committee of owner-drivers would undertake the collective bargaining. The legal position would be that the owner-driver committee would be at the direction and under the control of the CFMEU because the CFMEU owned the authority to bargain collectively. They would be agents of the CFMEU. Significant opportunities for subterfuge and market manipulation could arise from the proposed arrangement---an issue the CFMEU does not raise or seek to address. In these circumstances it is highly likely that any potential public benefit could in fact result in disadvantage to the public.

Because of this danger, the application by the CFMEU should be rejected.

If a new application for collective bargaining were to be made, the persons making application should be the beneficiaries of the application---that is, the owner-drivers themselves. If rights to collective bargaining were conferred, they would be owned by the owner-drivers and they would be directly accountable to the ACCC. It would be appropriate for the CFMEU to support and assist the owner-drivers in such circumstances, but the problem of confused and blurred legal authority and accountability would be avoided.

The position of ICA in this respect is consistent with the public advice from the Chairman of the ACCC to the Minister for Small Business, Independent Contractors and the Service Economy (see the attached letter, dated 28 August 2008). In summary, the letter states that unions cannot make applications, but can provide services to applicants.

6. Alternative approaches for rectifying perceived issues in the marketplace
ICA does not question the good intent of the CFMEU or the unidentified owner-drivers in making the application. The CFMEU clearly believes that there are issues in the market that need to be addressed. However, ICA believes that there are alternative avenues for addressing such issues that are readily available to the CFMEU and the owner-drivers which could make an application for collective bargaining unnecessary. In fact, other jurisdictions are already addressing the issues and confusion could eventuate should this CFMEU application be granted. The two key avenues are the sham contracting provisions under the Workplace Relations Act and the unfair contract provisions under the Independent Contractors Act.

6.1 Sham contract action
The CFMEU predicates its application on the assertion that owner-drivers do not have bargaining power. In effect, they assume that the owner-drivers who are their members are 'employee like'. Genuine owner-drivers are self-employed independent contractors. As such, they have, or seek to acquire, the ability to bargain, just like anyone else in business. The CFMEU states that its owner-driver members do not have this capacity.

In 2006, probably the world's first sham contracting provisions were introduced via the Workplace Relations Act. This gives applicants the ability to have contracts tested to see if they are a sham---that is, contracts that purport to be commercial contracts but are, in reality, employment contracts. This is available to the owner-drivers.

6.2 Unfair Contracts
In 2007, the Independent Contractors Act was proclaimed. It also is a world first. It offers relief for independent contractors from unfair contracts. Already, two unfair contract decisions have been made. Both of these decisions are explained and commented upon on ICA's website (www.contractworld.com.au)
  • The first decision related to owner-drivers in the long-haul sector. A Transport Workers Union agreement was found to be the relevant contract. It was found to be unfair because it enabled the transport company to require the owner-drivers to upgrade to a more expensive vehicle than was commercially viable for the owner-drivers. The contract was varied by the court to remove the unfairness.
  • The second decision investigated a termination of a contract for an independent contractor structured through a Pty Ltd company which supplied warehouse management services. The contract was found to be unfair and compensation was ordered for the termination. The court's decision was particularly interesting because of the determination it made on comparative bargaining power. Contrary to the claim by the applicant, the court found that the buyer of the services was as dependent on the seller of the services as was the seller on the buyer. That is, that the bargaining power of the parties was co-dependent.
Both of these cases demonstrate that the balance of fairness and bargaining power cannot be assumed in the competitive, commercial environment. It cannot be assumed that one party has more power than the other. This contrasts with the employment environment, where bargaining power is predetermined by the employment contract. In the commercial environment, the facts of each situation need to be investigated to discover the truth. This avenue is open to the owner-drivers.

6.3 Education and information services
Many of the concerns expressed by the CFMEU could be addressed though education and other services. Presumably there is nothing at law to prevent the CFMEU from liaising with Queensland road traffic authorities on safety issues, discussing with companies more timely payment arrangements, assisting owner-driver members to better understand the commercial environment in which they operate, negotiating better business financing arrangements for their members, and so on.

If these other options were followed up, it might obviate the need for a collective bargaining application to the ACCC.



Part B: ICA comment on specific clauses in the application

To further explain ICA's position, it is helpful to comment on some specific clauses in the application.

Clause 1.4 states: "Over the last few years numerous owner driver members have expressed concern to the Union regarding their working entitlements and conditions and their lack of ability to negotiate with customers".

ICA comment: The application fails to produce any evidence to support this statement. Workers may have expressed concern, but there is no attempt to provide evidence as to who is concerned, what that concern is, whether the concern demonstrates lack of negotiation ability and what relevance this has to the granting to the CFMEU of a right to bargain collectively. At best it can be inferred that the CFMEU has had discussions with only 24 of the up to 1,000 owner-drivers who operate in the sector. This would not be an adequate representation of the sector.


Clause 2 supplies the CFMEU's description of the market.

The application says that:
  • there are two sorts of trucks supplying services (22.5 tonnes and 50 tonnes).
  • insurance policies generally restrict drivers to driving of trucks within a 150 km radius of the place of garage. On this basis the CFMEU infers that the earthmoving market is geographically restricted. The application seeks to confer on the CFMEU a right to conduct collective bargaining within that geographic area.
  • there are low entry and low exit costs to and from the market. (ie) drivers can buy or sell trucks easily.
  • most work is in the civil and commercial construction area and is controlled by principal contractors who sublet through tender to earthmoving companies. These companies employ very few truck drivers and manage the bulk of the work through owner-drivers.
  • The CFMEU identifies and names 17 companies who allocate the work. there is no formal system for engaging owner-drivers. Contracts are verbal and operate on a job-by-job basis. There are no ongoing contracts.
ICA comment: Assuming this description of the market is correct, the CFMEU has described a structure which would be typical of a well-operating competitive free market. This is evidenced by the fact that there are a large number of potential suppliers of services (owner-drivers) and a good range of potential purchasers of services. If there were to be a problem, it would be if the purchasers of services (the 17 named companies) were colluding to control the purchase price of services. The CFMEU does not suggest this or any other process that would identify the market as malfunctioning or corrupt.

Given that the market appears to be functioning well, ICA is concerned that delivering the right to bargain collectively to the CFMEU could create circumstances in which price collusion eventuated. We do not suggest that this is the intent of the CFMEU, or that it would occur, but rather point to the potential for it to occur.

In describing the market in this clause the CFMEU is in fact inferring that it is this competitive environment itself which it views as a problem. But there are flaws in this analysis.
  • No evidence is presented that the market is restricted to the 150 km radius as a consequence of insurance requirements. It is doubtful that this is the case. The application does not produce any evidence of market restriction due to insurance requirements. If it did, this would need to be tested in the market because insurance is a highly variable commodity where insurance companies will and do make modifications to policies to write business. It is more likely that the earthmoving market is typified by one of high flexibility up and down the east coast of Australia.
  • The application infers that there are only two types of haulage scenarios involving 22.5 and 50 tonne trucks. Yet 'earth' is not one homogenous product but rather a highly variable thing ranging from heavy clay through dry sand to rocks. It would be expected that contract rates and arrangements would vary depending on the type of earth being moved and that negotiations around these parameters would be normal. The CFMEU application does not discuss these variables or produce any evidence about the nature of earthmoving haulage. In this respect, the application is simplistic and lacking facts.

Clause 2.21 states: "In the usual course, there is no negotiation between the owner driver and the earthmoving contractor over the price and terms on which the owner driver will provide the services".

ICA comment: The CFMEU does not present any evidence to support this claim. At a minimum, interviews with a good number of owner-drivers should be conducted. This should include the 24 CFMEU members and at least double that number of non-CFMEU members. Interviews should also be conducted with representatives from the 17 earthmoving companies and principal contractors to discover the extent of negotiation occurring on individual jobs. The reality of the construction market is that it is not static but highly variable given that the quantity and size of projects being undertaken varies over any given period of time. Further, the number of owner-drivers available to do work fluctuates. The most likely scenario is that the market would be constantly shifting as supply and demand moves to find equilibrium. In this environment, negotiation would be almost constant.


Clause 2.24 states: "Owner drivers are invariably price takers. The earth moving companies hold all the bargaining power ... The weak bargaining position of owner drivers means that there is always an owner driver out there in the market who will do the work at the offered price."

ICA comment: For the same reasons discussed above, this claim is not substantiated. In may be true that, from time to time, there may be other owner-drivers prepared to work at prices on offer. But equally there will be times when drivers are not available and the earthmoving companies are forced to offer higher prices to get the work done. Unfortunately, the CFMEU does not make any attempt at substantiation. Some factual research should have been expected to support its contention. It may be that there is, in fact, a shortage of earthmoving drivers in the sector. If this is the case, a shortage would deliver significant bargaining power to the owner-drivers.

The most likely state of affairs is that the bargaining power is in a constant state of flux. Sometimes it would favour the purchasers and at other times the sellers of the services.

In addition, this clause embodies an underlying assumption that the earthmoving companies think and price as one. This would only be the case if there were some sort of collusion occurring that created price controls of some nature. The CFMEU does not allege collusion or present any evidence to support an assumption that the earthmoving companies think and act as one, thereby maximizing their bargaining power against the drivers. In fact the reverse is most likely the case. It is most probable that the 17 identified companies, and others that may enter the market from time to time, are in fact in fierce competition. That is, each seeks to offer the lowest price to obtain the work. But a low price means nothing if they fail to shift the earth. The earthmoving companies are thus dependent on the owner-drivers.


Proposed arrangement
Clause 3.2 says that the arrangement for which approval is sought is to apply to present and future owner-driver members of the union and present and future acquirers of earthmoving services.

ICA comment: This creates a key concern about the application. It could suggest that the CFMEU seeks some sort of de facto monopoly right to control the negotiation of earthmoving contracts in the future. It is a statement that stands at odds with other statements in the application which assert that that participation will be voluntary. The risk is real, however, that the granting of a licence to the CFMEU to bargain collectively could result in the CFMEU leveraging control over all owner-drivers.

To understand the concern, a key point is that the application is by the CFMEU, not by the owner-drivers and is an application for the CFMEU in effect to have the licence to negotiate. It would enable the CFMEU to be the entity entitled to control negotiations. The number of owner-drivers that could be embraced by the negotiations could expand or contract without any oversight as to who was involved. Further, the CFMEU seeks to pull in all existing earthmoving companies who are named and any future companies. This could result in significant lessening of competition because new entrants could potentially be presented with locked-in arrangements with which they do not agree. It creates circumstances for the collective bargaining process to result in effective market manipulation under the cover of a TPA dispensation.


Clause 3.3 says that the terms of negotiation are to include
  • Rates of pay
  • Payment terms
  • Safety
  • Minimum engagement/payment per day
  • Allowances for delays etc.
  • City and regional rates
ICA comment: Price setting: The detail provided is scant and insufficient to provide an understanding of what it is the CFMEU seeks to achieve as an outcome. However, these terms of negotiation look very similar to the terms that could be expected to be seen in an employment-style industrial instrument (award, enterprise agreement or pattern industry-wide agreement). It is this clause which best indicates that the CFMEU is seeking to apply employment-style price-setting to the commercial contracts of owner-drivers. This is not appropriate because it enhances the potential for the market to be manipulated. Before the application could proceed further, the CFMEU needs to supply considerable detail as to the form and application of the price-fixing that they would seek to apply and what limitations to price-setting they believe should apply.

ICA comment: Safety: There is a strong emphasis in the submission that control of prices is necessary from a road safety point of view. This is discussed at length in clause 14.3, to the extent that it is presented as a primary reason for granting the application. This, however, is an ill-founded proposition.

The CFMEU argument contends that commercial pressure induces owner-drivers to speed, take illegal drugs when driving, overload trucks and generally engage in unsafe driving practices. Commercial pressure may induce some drivers to behave in an illegal or even criminal manner, but this is not a human behaviour issue that is unique in the owner-driver area or in the earthmoving market in south-east Queensland. This can happen in all walks of life and all fields of human endeavour. A business executive facing bankruptcy may turn to drink or drugs and drive illegally or act fraudulently in an attempt to relieve commercial pressure. But these commercial pressures, pressures that can face anyone in business, are never used as an excuse to legitimize illegal or criminal behaviour. The existence of commercial pressure is certainly not used to justify price-fixing or price-setting.

Further, the issues of road and work safety are not matters within the jurisdiction of the Trade Practices Act. TPA legislation is concerned with the protection of competition and the consumer. Safety issues are indeed important and need to be addressed, but the legitimate authorities to deal with these are the road and work safety authorities. In addition, the CFMEU has not demonstrated that the fixing of prices through collective bargaining will change the behaviour of owner-drivers to the extent that they will drive safely.


Conclusion
ICA submits that:
  • This application from the CFMEU should be rejected at the first instance because it is inappropriate for the CFMEU to make such an application.
  • It would be appropriate to consider a new application directly from named owner-drivers and in which the CFMEU was acting as an agent of the owner-drivers. If such an application were made, considerably more research and information would be required than is contained in the current CFMEU application.
This position of ICA results from the fact that the CFMEU is seeking a special authority based on unsubstantiated allegations concerning the commercial circumstances of unidentified persons.


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