Closing Loopholes Bill confronts the new realities of self-employment

Self-employment has changed in recent years. It’s been both shrinking and becoming more precarious. Proportionately, there are fewer business owners and there’s more gig work.

The reality is getting further away from what many have imagined.

An idea that’s been going around for a long time held that freelancing is part of some entrepreneurial boom in self-employment that is going to liberate us all, and that we should let it grow unfettered.

That boom is well and truly overstated. Self-employment is in decline, not just in Australia but overseas. The Australian Bureau of Statistics shows that self-employment has fallen from 19.1% of employed people in 1991 to just 15.7% in 2022. Other data sources show the same trend.

It’s the same story across most of the OECD. Their employment database shows that 25 countries have experienced clear, sustained long-term declines in rates of self-employment since the 1980s or 1990s. Just four have shown sustained long-term increases. Several other countries (a minority in the OECD) show uneven patterns.

Even in the US (where one agency breathlessly forecast in 2016 that “by 2020, 40 percent of the U.S. workforce is expected to be independent contractors”), self-employment is continuing to go down and accounts for less than one in ten employed people.

Moreover, the composition of self-employment in Australia is changing. There are fewer opportunities to establish and maintain small businesses, but more gig work. As a result, there are now 112,000 fewer self-employed people with their own employees than there would have been if their share of total employment had remained unchanged over the past decade. But there are 35,000 more part-time self-employed without employees.

The increasing power of larger firms makes market entry for new small businesses harder. But large firms can also demand more low-cost, part-time gig workers who don’t get holiday pay, unfair dismissal protection, bargaining rights or a whole lot of other protections that employees have.

Gig work is the most high-profile form of freelancing. For advocates, it’s something to be ‘celebrated.

Yet many gig workers are vulnerable workers. Not only do they miss out on the benefits just mentioned, they also receive pay that is below the appropriate award rate or minimum wage, especially after their costs are taken into account. They have very little individual power compared to the digital platforms they mostly work for. And gig workers on the roads — food couriers and even truck owner drivers (who mightn’t need digital apps) —face dangers that are accentuated by low pay and the incentive to cut corners to save time.

So it’s no surprise that they want protection of minimum standards, as several surveys have shown.

I used to think that the best way to do this was to recognise gig workers as employees. But that’s not necessarily what they want.

To varying degrees, many like the flexibility that some gig work provides. So, while some are forced to become contractors when they shouldn’t be, many others, perhaps a majority, aren’t keen to work as employees.

Historically, that has created a quandary for policy makers, because current labour law, including the protections it provides, is mostly built around the idea that workers need to be ‘employees’ to be covered. The results have been uneven. And the corporations who financially benefit from cheap gig work have the resources to organise effective opposition to any changes, in part by mobilising resistance from the gig workers who are meant to benefit from it.

Just because many gig workers don’t want to be employees isn’t sufficient reason to abandon efforts to protect their conditions and safety. After all, you don’t abandon minimum wage laws just because some people are desperate enough to work at below the minimum wage, and don’t care about that undermining the conditions for everyone else. But you can’t ignore that preference either. It creates a political reality that has to be respected.

Having dug deeper, I’ve realised that turning gig workers into employees wasn’t usually necessary, as most of the aims of protecting them could be achieved without doing that.

It’s been going on for four decades in New South Wales. Under ‘Chapter 6’ of the NSW Industrial Relations Act, payments to owner-drivers of trucks, and many of their conditions of work, including rights to union representation, have been regulated by the Industrial Relations Commission. This is all done without turning them into employees. It’s made the roads safer.

It’s a model that is followed in that part of the ‘Closing Loopholes No 2’ Bill Bill that amends the Fair Work Act to deal with ‘regulated workers’ — digital platform workers and owner-drivers of trucks. It’s still before the Senate. It will likely be considered in February.

It would allow the Fair Work Commission, like its counterpart in NSW, to establish standards on things like payment terms, deductions, working time, record-keeping, consultation, representation and union delegates’ rights for specified groups of ‘regulated workers’.

It could only do this for variously defined vulnerable workers. It could not give preference to employment versus contracting relationships. Regulated workers could not be redefined as employees.

It will have to tailor regulation to the circumstances of the workers and their industry. That’s important, as conditions in disability care, for example, can be very different to road transport.

There are several weaknesses in the bill. Overall, though, it meets criteria for good regulation of gig workers. It would be a useful step forward in dealing with their vulnerability. It will do that while allowing those self-employed people who are trying to hire workers and grow small businesses to get on with it.

It takes different arms of public policy to respond to the changing fortunes of the self-employed. It is through competition policy and regulation of businesses that policy can respond to the declining opportunities for small businesses. It is through amendments to the Fair Work Act that policy can respond to the conditions experienced by vulnerable gig workers.

David Peetz is Laurie Carmichael Distinguished Research Fellow at the Centre for Future Work and Professor Emeritus, Griffith Business School, Griffith University

This article was published on 20 December 2023 in Pearls & Irritations