Advisers playing risky game with direct overseas employees
Advice businesses that directly contract offshore workers are exposed to legal challenges in light of a recent Fair Work Commission decision.
The recent application to the Commission was brought by a Philippines-based worker who claimed that the Australian legal firm she worked for subjected her to unfair dismissal.
Mounting a legal challenge in a different jurisdiction against a law firm was a bold move for the worker, however the ruling may encourage others to seek similar remedies. In any case, it has proven that businesses directly engaging offshore workers are exposed to legal and financial risks that undermine the value proposition of this strategy.
The defense arguments made in this case are worth discussing, as they are widely relevant across the industry. The employer asserted that the worker was an independent contractor, arguing that she should be considered out of scope for Australian legislation because she was living and working outside of the national system.
However, this argument did not hold with the Commission. Their decision found clear evidence of an employer-employee relationship. Furthermore, given that the employer was based in Australia, the employee, regardless of geography, fell under the protections of the Fair Work Act 2009.
In explaining its decision in favor of the worker, the Commission pointed to elements of her working arrangements that resembled a direct employment contract rather than an independent contractor agreement. As is the case for many offshore workers within Australian businesses, she was fulfilling a necessary core function of the business.
Clients would not have known she was anything other than an employee. She had an ongoing relationship with the business, took daily instruction, completed full-time hours, and was directly supervised. She used computer equipment and phone software provided by the company and communicated with clients from a company email address.
This rationale for determining employee status likely means that a wide range of so-called contractors are, in fact, employees, with recourse to the protections of Australian labor laws and workplace legislation.
It is also worth noting that the Commission commented on her “very low” hourly pay rate, stating it was “less than the minimum rates payable under the relevant award for employees performing the same work.”
This could be seen as an invitation for offshore workers to seek pay parity, eroding one of the major benefits of maintaining an offshore workforce. Given the uncertainty and potential ramifications of breaching legislation, Australian businesses will need to question whether the business case for direct DIY offshoring truly adds up.
The backdrop to this case is a Commission that is well-equipped and, according to insiders, entering a new era of enforcement. With tighter legislation now in place to protect gig economy workers, the Commission has a clear remit to weed out so-called “sham” contracts.
The amended Fair Work Act addresses the practice of using contractor arrangements to dilute workers’ rights. In cases where work is deemed “employee-like,” Fair Work Australia rules apply.
Impact for advice firms
Australian advice businesses are at real risk of violating Fair Work Act legislation, an infraction that could have significant financial and reputational consequences. For businesses where trust is core, such as professional services and advice firms, this risk is a gamble not worth taking.
In contrast, businesses partnering with established offshore service providers remain out of scope and are shielded from such challenges. The offshore partner assumes the role of employer, eliminating any risk that clients could face legal actions from direct contractors. The offshore partner is responsible for compliance with the employment, tax, and business regulations in its operating jurisdiction.
In countries such as the Philippines, offshoring is a powerful economic driver, a valuable source of employment, and a viable alternative to immigration. Offshore team members employed by offshore service providers are far from “gig-economy” workers.
It’s a highly competitive industry, so to successfully attract and retain their teams, offshore providers offer competitive market wages and attractive benefits packages. Team members can expect healthcare, wellness programs, a wide range of social activities, professional development and paid leave.
Taking a DIY approach rather than engaging an offshore service provider has always been a questionable business decision. Directly contracting offshore staff brings avoidable risks.
Without a local intermediary, businesses forgo vital local knowledge and on-site troubleshooting. They expose themselves to the threats of cyber risk, fraud, business interruption, and a dangerous lack of supervision for their offshore team members.
When the stakes are so high, directly contracting workers is a high-risk strategy, especially in industries where client data and confidentiality are central to the business. This potential for DIY offshoring to increase risk exposure for advice businesses and their clients is not lost on ASIC.
ASIC has announced its intention to increase monitoring of offshoring arrangements involving financial advisers. In particular, it plans to review safeguards in place to mitigate risks related to technology, data sharing, and privacy.
For offshore service providers like 5 ELK, we welcome the attention that ASIC is drawing to our industry. Increased scrutiny means that businesses will be better equipped to make smart, risk-appropriate offshoring choices.
By partnering with a reputable offshore provider, businesses can leverage an economical and flexible workforce without taking on unnecessary risks. The right offshore provider will offer secure office space, a vetted talent pool, robust recruitment, onboarding, and training programs, proven investments in cybersecurity, and externally audited practices.
They should demonstrate a commitment to safety with firewalls, remote servers, compliance training, secure office space, and security certification. For businesses looking to grow their workforce and increase margins, partnering with a reputable offshore provider opens up a cost-effective labor market while effectively de-risking the strategy.
Will this case empower other directly contracted workers in the Philippines and elsewhere to challenge their pay and conditions?
It certainly has the potential to effect change both at home and abroad, promising greater protection to a workforce vulnerable to exploitation and sub-par working conditions.
If nothing else, it will demonstrate that cutting corners with offshoring carries significant risks. This ruling reinforces what industry leaders have long recognised: the only ethical and risk-appropriate approach to offshoring is partnering with a reputable, licensed offshore service provider.
Danielle Cornelissen is CEO and founder of outsourcing provider 5 ELK.
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