Australian trucking businesses are being undercut by competitors allegedly using sham contracting arrangements to slash labour costs.
Queensland Trucking Association (QTA) CEO Gary Mahon told SmartCompany some operators were losing contracts to businesses allegedly avoiding employment obligations.
“What we’re finding is these sham contractors, they’re beating people on contracts by 25 and 30%,” Mahon said.
“They’re getting an extraordinarily unfair advantage.”
The allegations come as the Fair Work Ombudsman (FWO) investigates sham contracting and worker misclassification across the road transport sector.
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The regulator confirmed it had 24 active cases involving sham contracting and misclassification as of October 7, alongside five investigations into road transport supply chains.
Sham contracting occurs when a business misrepresents an employment relationship as an independent contracting arrangement, potentially avoiding obligations such as superannuation, paid leave and workers’ compensation.
Mahon said some trucking companies were using Australian Business Numbers (ABNs) to engage drivers who, in practice, worked as employees.
“What the employer is in effect doing is using tax law as a veil for employment law,” he said.
The QTA estimates sham contracting can cut labour costs by 22%, compared with typical trucking industry profit margins of 5% to 6%.
‘A race to the bottom’
Mahon said the practice was making it increasingly difficult for trucking businesses that meet their obligations to workers to win contracts.
“There’s not a day goes by that I don’t get a call from an operator who’s being substantially hurt by someone in a sham arrangement,” he said.
The QTA estimates more than 40,000 of Australia’s 600,000 transport and logistics workers are engaged through ABNs.
Mahon said the problem extended beyond trucking operators to the companies hiring them.
“We’ve had reported to us that clients are pushing for drivers to be put on ABNs because they want cheaper freight rates,” he said.
The pressure is creating a difficult choice for operators trying to meet their employment obligations while remaining competitive.
Mahon warned the industry was moving towards a “race to the bottom”, with compliant businesses facing pressure to reduce employment costs to win contracts.
Drivers missing out on entitlements
Mahon said drivers engaged under sham contracting arrangements could initially believe they were better off because they received higher hourly rates.
The higher rate can come at the expense of leave, superannuation and workers’ compensation.
Mahon said drivers could discover they lacked workers’ compensation coverage only after suffering an injury.
“Everything’s okay until it’s not,” he said.
He also raised concerns about drivers working weekends without receiving the penalty rates that would otherwise apply to eligible employees.
Fair Work investigates trucking operators
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The FWO confirmed it had issued 39 infringement notices for unlawful independent contractor advertisements, including 25 involving road transport businesses.
The regulator has also issued 13 compliance notices involving worker misclassification, recovering more than $94,000 for 17 workers.
A further 99 road transport duty holders have received formal correspondence outlining their due diligence obligations around sham contracting.
“Employers should be aware that the Fair Work Ombudsman has investigations on foot into alleged sham contracting in sectors including road transport,” an FWO spokesperson told SmartCompany.
“We are unable to comment on active investigations.”
Mahon said the QTA had participated in discussions with the FWO, ATO and other government agencies, but said more needs to be done.
“We’re not seeing any substantial evidence of appropriate enforcement action being taken against these practices,” he said.
He called for greater accountability not only for trucking operators engaging in unlawful arrangements, but also for major customers allegedly encouraging the practice.
The FWO said courts can impose penalties of up to $99,000 per contravention on businesses with fewer than 15 employees. For larger businesses, the maximum is the greater of $495,000 or three times the underpayment.
“It is completely unacceptable to say there is a group of you who have to abide by the law and there’s a group that doesn’t and we’re not going to do anything about it.”