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Guest blogger: an ICT contractor’s perspective

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Even It Up! received this enlightening and thought provoking article from an ICT contractor that analyses and questions the practices that have permeated the industry, and provides some relevant insight into the question: what needs to be done?  The rationale for the article is provided in Context Statement that follows.

Are ICT contracts fair?

The information and communication technology (ICT) industry has been booming since the early 80s. The emergence of the independent ICT contractor has been a result of the increasing demand for technology workers world-wide. Many organisations rely on the use of transient skilled professionals to remain competitive and provide the growing range of services demanded by an increasingly technology aware public. The market value of ICT contractors is primarily determined by the simple principle of supply and demand, but the real value to the organisations who engage them lies in the combination of convenience and the avoidance of a range of high costs, such as the costs of professional skills maintenance,  administration of superannuation and taxation as well as the liabilities that normally attach to severance, sick leave and holiday pay. Even more appealing: organisations also have the ability to seek action against the people who they engage, more often than not, as,  contractors if that have not met professional indemnity insurance requirements.  Moreover, organisations are also not necessarily exposed to any workers’ compensation liability for workplace injury or even public liability for the contractor being on site. All this, and organisations are able to draw upon a qualified skill base in a rapidly evolving technical environment.

Recruiting ICT Contractors

The method of engaging ICT contractors through recruitment firms has become well-entrenched and is an industry in itself.  These firms source, and then place people on the site of the engaging organisation under a contract between the recruitment firm and the contractor. The recruitment firms effectively act as ‘agents’ who canvas organisations to determine what needs they might have for ICT staff, locate possible staff through database searches or job advertisements, and then match their clients’ requirements to the available personnel at the time. The system works reasonably well and relieves the contractors of advertising, marketing and placement responsibilities.

So far, so good.  What is not so good is the contractual nature of the actual engagement between the contractor and the organisation that requires their services.  This is where the issue of fairness enters the equation.  What ends up happening in almost all IT recruitment situations is that the recruitment firm both sources the contractor and engages the contractor as well.  The contractor is then ‘supplied’ to their client under a services agreement with the recruitment firm.  This is primarily so that the recruitment firms can guarantee its income stream.  As long as the contractor remains on the site of the organisation then they are able to charge the organisation their placement fees and the contractor’s rate.  But recruitment firms are in fact no different to real estate agents that bring a buyer and a seller together so that the parties can contract with each other.  The critical difference in the IT recruitment industry is that the recruitment firm ends up standing in the shoes of the buyer. This means that the party that is effectively ‘buying’ the resource (the organisation) does not engage in a contract with the party with whom they are engaging (that is, the contractor), but with the agent. The principal reason for this is that in addition to all of the other benefits already outlined organisations do not want to be exposed to any employment or commercial legislation.  The contract that is signed between contractor and recruitment agent leaves the organisation purposefully removed from any legal obligation whatsoever.

Organisations and recruiters: partners in crime

It is in fact common practice for ICT contractors to rarely be engaged by the organisation that requires their services.  Most engagements generally follow one of two models: (a) contractors are ’employed’ by the recruitment firm and then contracted out to the engaging organisation or (b) contractors are engaged under a contract with the recruitment firm and then passed on to the organisation via a contract between the recruitment firm and the organisation (a ‘services agreement’).  Yet for all intents and purposes the client of the recruitment firm is effectively ’employing’ the contractor to work on its site with its own staff.  Effectively the organisation has all the benefits of an employee but has no obligations to the person whatsoever.

But the situation does not stop there. If the recruitment firm engages the contractor as a true contractor (and not as an employee) then it too wants to limit its responsibility for the contractor, so will only engage the contractor on the terms that exempt it from any obligation for workers’ compensation, professional indemnity, public liability, health care, superannuation, taxation and so forth. The important issue here is that there is confusion as to whether there is a genuine commercial contract in place or whether an alleged commercial contract has been turned into an employment contract.

How the “relationship” works

This raises fundamental concerns about the relationship between ‘contractor’, recruitment firm and engaging organisation (client). The nature of the contract between recruitment firm and contractor is such that it effectively strips any commercial rights from the contractor. At the same time, it imposes no obligations on the recruitment firm or its client. The primary goal of the contract is to shift the consequences and impact of risk for every aspect of engagement on to the individual contractor. The situation readily suits the recruitment firm and the engaging organisation, but any reasonable person must consider it wrong according to the intent underpinning workplace relations legislation.

The fundamental reason for the use of the contract mechanism is to avoid any actual relationship of employer and employee —thus avoiding any of the associated obligation-generating legislation. It works very well—mainly because there is no legislation to control it. As a result it has become progressively abused by engaging organisations who want to avoid any consequence of acting fairly towards people.

Contractors: a legal anomaly

In effect, the status of ‘independent contractor’ is an anomaly at law. The ’employer’ provides the facilities in the same way as it would to an employee, it imposes the same hours as it would on an employee, and applies the same performance criteria. It effectively requires the contractor to act ‘like’ an employee, yet it has no responsibility or obligation to him or her whatsoever. This is further facilitated by the relationship between the ’employer’ and the recruitment firm—something which isolates the contractor even further.

The contracts that are created between contractors and recruitment firms are, unsurprisingly, drafted by lawyers on behalf of the recruitment firms.  There is no legislation governing the way in which lawyers draw up contracts for their clients and quite obviously they will draft contracts to protect their client’s interests.  Given the outrageous nature of some of the terms in many contracts there seems to be scant ethical consideration of contractor’s rights.  In essence, this means that individual contractors face an uphill battle to engage on reasonable terms when the terms have already been developed for the recruitment firm to only protect their interests.  Amendments by contractors are rarely entertained and if they are they are generally superfluous.

Unethical recruitment practices

To make matters more difficult for contractors is the range of practices employed by recruitment firms.  Many recruitment firms adopt the ‘convenient’ practice of withholding their contracts until the last minute—after there has been a commitment from both the engaging organisation and the contractor to take the assignment. This is done so that once the contractor has committed to taking the role with the recruitment firm’s client, there is little time in which to negotiate over the terms. At the point after an interview has been successful, there is an in-principle commitment by the contractor to take the role. To refuse the role on the basis of unacceptable contractual terms harms the contractor’s reputation and, more importantly, ability to obtain work. It also means delays which result in loss of income.  As a result the offer of contract work is provided with an assumed commitment by the contractor to take the role and, consequently, sign the contract—without ever having seen it or being given any opportunity to address it.

In many cases the recruitment process achieves its best outcome when the contractor is out of work.  This is a known, and exploited, principle by recruitment firms.  If the contractor is sitting at home not earning any income then the need to become engaged is very pressing—the bills still need to be paid. There is no sick leave, holiday leave or redundancy for a contractor. A contract is provided to the contractor on  a ‘take it or leave it’ basis. Amendments to a contract in this environment are considered unlikely at best.  Any request to have a solicitor review the contract is almost always rejected out of hand. If amendments or third party legal advice is entertained at all, then the alterations are simply rejected at the last possible moment so that the contractor is exposed to further loss of income and virtually forced to sign.

Then there are the associated delays which eat up more time and result in—that’s right—no income. Recruitment firms depend on this. For most recruitment firms, any suggestion that a contract might be altered or a solicitor engaged is seen as a warning that the contractor may be ‘difficult’ to deal with. This situation is almost always relayed to the ‘valued’ client in these terms to exonerate the recruitment firm for any delay. Besides, recruitment firms don’t want people on their books who want their right recognised—they simply want contractors to sign on the bottom line and go quietly to join the ranks of the ’employer’, albeit in an environment where the employer has no obligations to them.

Inequitable contracts

Then there are the terms in IT recruitment contracts.  Several of these vary from illegal to unethical in many contracts.  It is hardly surprising that the largest section of any contract covers termination. This section basically strips a contractor’s rights down to nothing. It is not unusual to see terms which give the recruitment firm the right to terminate at any time—with or without notice. If notice is specified, then it is couched in such vague terms that a mere telephone call will do the trick. Termination can (and often is) invoked for a raft of different reasons: ranging from the insolvency of the contractor through to ‘performance’-related issues. It is staggering, for example, that a recruitment firm can terminate a contractor if the contractor is subject to bankruptcy proceedings when there is no contractual clause which allows the contractor to terminate if the recruitment firm is subject to the same. When one considers that the bankruptcy of the recruitment firm may mean that it is incapable of paying the contractor this makes the absence of a reciprocal obligation absurd. Moreover, how is the bankruptcy of a contractor going to affect his or her capacity to continue to work and be paid?

The ‘performance’-related clauses for terminating a contract are even more Byzantine. A client of the recruitment firm can simply ring up and claim that the contractor is not performing or is not suitable. The recruitment firm, concerned about maintaining its relationship with the client, will simply notify the contractor that the client has terminated the contract for performance-related reasons. There is no opportunity to resolve the ‘performance’ issue and no right of redress. The prime concern for the recruitment firm is the maintenance of its relationship with the client. There is absolutely no consideration given to the contractor’s welfare.  After all, there are hundreds, if not thousands, of ICT contractors.

Of most concern are the clauses in contracts that are simply illegal. The first type can be termed the ‘restraint of trade’ clauses. The most obvious of these is the one that prevents a contractor from engaging directly with the hiring organisation for a certain period after the current contract expires. Recruitment firms know that this clause is unenforceable, but it is still used in almost every ICT contract. It is even more of an affront when the clause is extended to ‘any related organisation’ of the client as well. This catch-all allows recruitment firms to bluff contractors so that they are unable to work for a variety of other organisations ‘related’ to their client’s business. These clauses are legally invalid, yet recruitment firms still use them to secure the ‘intent’ of the contractor.

The other typical contractual clause that demands criticism is the one that ties contractors to a particular term and then imposes damages upon them if they break it. The recruitment firms consider that the engagement contract is like a lease for a property; contractors are asked to sign an agreement that has them commit to a certain term and if they do not honour that term then they should pay damages.  Yet there is no reciprocal obligation on the recruitment firm or its client to honour that term. If the recruitment firm or its client wants to terminate (for almost any reason), then that is the end of it. If the contractor wants to terminate, then there is the exposure to damages claims from the recruitment firm and/or the client because of the failure to complete the term – even if the contractors is physically incapacitated. So much for mutuality of commercial contract!

Rights-free zone?

So what does this all mean?  Basically ICT contracting and the recruitment industry is a rights free zone.  ICT contracts are simply not fair because they only serve to protect the most powerful entities.  ICT contracts will only be fair when both sides carry equal and binding obligations that are legally enforceable and mutually agreeable. No contractor enters into a contract with the intention of not doing the job that he or she is required to do. It is in contractors’ interests to do the best that they can and have the best referees possible. Recruitment firms and their clients know this.

Contractors have no ability to verify anything about the commercial viability or intentions of the recruitment firm or the engaging organisation yet they are required to bear all the risk and consequence of engaging.  They have no way of knowing the agenda of the organisation with which they are going to work, or the quality of the staff and management,  and precious little about the recruitment firm or even its ability to pay. Contractors may end up in an organisation that wants them only until their knowledge has been transferred to the organisation’s staff and then their contract is conveniently terminated with no recourse whatsoever.  While an employer can check a contractor’s referees, his or her CV and make any number of enquiries, the contractor has no avenue open to him or her to verify anything about the organisation that he or she will be working in. If a contractor is unfortunate enough to work in an organisation with a psychotic manager or disgruntled staff, then the contract can be unbearable. Terminating it is not as simple as it may sound, when one considers that one’s actions will not only damage the relationship with the recruitment firm but also with the organisation that is needed to provide a positive reference.   A contractor’s reputation is their key trading mechanism and is something that must be protected if future income is going to be possible.

The clients of recruitment firms are effectively isolated from the contractor so that there is little ability for the contractor to find out anything about the organisation.  In some situations a contractor is engaged to do a job that no one else employed by the organisation has been able to do yet the contractor has no way of knowing that they are being set up.  It is highly unlikely that the recruitment firm will ever divulge that their client has already burnt three contractors.

Then there is the unscrupulous behaviour of some firms.  It is a widely known fact that many prominent consulting firms engage contractors in order to demonstrate to a client that they have the resources to be able to meet the client’s demands.  If they don’t win the business or if costs start to rise during the engagement they quickly divest themselves of the contractors.  It is an unfortunate fact that it is becoming more frequent for contractors to be terminated because an organisation needs to make a sudden reduction in costs.  Some of the countries largest and most well known organisations are regularly divesting themselves of contractors with no compensation or even recognition of the hardship caused.  Yet the public never hears of these situations because the contractors can’t do anything about it – exactly the intent of the contractual relationship.

The big bucks!

Recruitment firms will argue that all of the foregoing is the reason why contractors are paid the ‘big bucks’. The rationale is that if you take on all these obligations and risks, then you can demand a higher rate of remuneration. One would have to query whether high risk justifies behaving unethically, but at the crux of this issue is whether the contracts are fair.   Is it fair to have contractors take out workers’ compensation to cover themselves against a workplace accident where the environment (not of their own making) might be unsafe? Is it fair to impose public liability insurance on contractors when the premises at which they operate are not their own? Is it fair that contractors can be sued for professional negligence when they take directions from the client in the same way that employees do? Is it fair that a contractor loses the ability to earn an income because of illness or injury suffered as a direct consequence of their interaction with the organisation? Is it fair to terminate a contractor for non-performance reasons with no right of redress?  Is it fair to terminate someone’s livelihood simply because of commercial expedience?  Is it fair to make people sign contracts that are written solely for the protection of the more powerful entity?  Is it fair that organisations can act with complete impunity against individuals?  What ever happened to the principle of acting equitably and honourably?

In the final analysis, contractors are being asked to bear all of the risk in these relationships. But contractors are normal people who need to pay the mortgage, send the kids to school, buy food and establish a future. What are the consequences for the engaging organisations? None. What are the consequences for the recruitment firm?  None.

Where to from here?

So why contract? Why work in an environment that poses so much risk? Those not familiar with the ICT industry will simply respond that it is because the money is so good—ICT contractors are highly paid and so must accept the risks. This argument might be plausible if contractors were able to earn a full year’s income from year to year, but most don’t. They also don’t receive any income when they become ill, take leave to go on holidays, or re-train.

Contracts don’t grow on trees. Despite all the careful management of one’s career there are gaps between contracts—sometimes long gaps of several months. As for the rates of remuneration, they are not as outstanding as many outsiders may think.  The young hot shot that is driving around in the BMW today may be a dinosaur in five years time in the rapidly evolving technology market.  In reality, those who have been around for a while know that contractor rates end up being equivalent, over the long term, to a permanent salary once all of the costs (more than simply financial) are considered. What may seem to be great money at the time turns out to be not so attractive when you want a holiday or need training or fall sick or have a contract abruptly terminated. Then there are the ever-increasing costs for insurances and exposure to litigation, not to mention the drudgery of taxation and superannuation requirements. What looks like an exceptionally good income can become modest at best with the exigencies of contracting.

Of course, no-one forces anyone to contract. There is always the option to take up permanent employment, but in this age of workplace agreements and the marginalisation of employment law, the option to ‘go permanent’ is not a huge step forward. Besides, companies don’t always want ICT people as permanent employees for the reasons previously cited. The end result is that there is a large body of ICT contractors who work the way that they do because that is what the market wants. But this should not mean that organisations and recruitment firms can abrogate their legal and ethical responsibilities. The only strategy for contractors to protect themselves is such an environment is to pretend, or suggest, that they are available to other recruitment firms so that there is some insurance against the loss of the current contract. This harms everyone’s business—organisations cannot rely on the contractor’s staying, recruitment firms have high turnover rates, and so on.

What needs to be done?

Fair contracting means that both sides enter an agreement with the intention of doing exactly what is expected. This means that both sides need to accept a certain amount of risk and act in a way that looks after each other’s interests. There is nothing complicated about acting fairly. Fairness is based upon the principle that both sides are receiving equal and acceptable treatment. We live in a country where the ‘fair go’ implies that people will be given every opportunity to achieve the most that they can. We pride ourselves on treating others as we would like to be treated ourselves – don’t we?

The current situation where engaging businesses protect themselves from contractors and act with apparent impunity is not only unfair but is also morally reprehensible. But then how can they be expected to act when they have no leadership from any other sector to follow? There is scant leadership from Government who are quite often the worst abusers of the system.  In addition our politicians have basically ignored the problems in this murky area of ICT contracting and seem intent upon further removing employee rights wherever possible.  If this is a fair situation in a country where the fair go is prized as being part of our cultural identity, then something has clearly gone wrong.

There is a growing dissatisfaction within ICT contractor ranks with the current situation. Why is it that fewer contractors are prepared to relocate? Why is it that there are huge skills shortages? Why are the peaks and troughs in availability becoming so extreme? Why is it that so many ICT contractors would rather being doing anything else than ICT contracting?  Without exception, the more skilled and experienced contractors only want to leave the profession. Those who remain are either very young and naïve, demoralised, or pensive about the uncertainties that pervade the industry. The end result is that businesses are not really obtaining what they want and paying for it in more ways than simply remuneration.

So where is the solution?  Recruitment firms simply blame the ‘unfair contracts’ that they have to sign with their clients. Their clients blame work place legislation.  Each year the exposure to various legislation increases for business and each year the boundaries are being pushed a little further to make contracts even more water tight.  In this type of environment there needs to be leadership from someone.  Don’t we expect that from Government?

The ICT contract market has been a free-for-all for more than two decades, but if it is going to exist in the future and attract qualified and competent people, then it needs to be attractive rather than a cut-throat, mercenary, no-rights environment. In the end, the way in which people are treated will determine the way that they act—and this can only benefit business, the community and the country in general.

Are ICT contracts fair?
The information and communication technology (ICT) industry has been booming since the early ‘eighties. The emergence of the independent ICT contractor has been a result of the increasing demand for technology workers world-wide. Many organisations rely upon the use of transient skilled professionals to remain competitive and provide the growing range of services demanded by an increasingly technology aware public. The market value of ICT contractors is primarily determined by the simple principle of supply and demand, but the real value to the organisations who engage them lies in the combination of convenience and the avoidance of a range of high costs, such as the costs of professional skills maintenance,  administration of superannuation and taxation as well as the liabilities that normally attach to severance, sick leave and holiday pay. To make matters even more appealing organisations also have the ability to seek action against the people who they engage as, more often than not, contractors require professional indemnity insurance.  If that is not enough, organisations are also not necessarily exposed to any workers’ compensation liability for workplace injury or even public liability for the contractor being on site. All this, and organisations are able to draw upon a qualified skill base in a rapidly evolving technical environment.
The method of engaging ICT contractors through recruitment firms has become well-entrenched and is an industry in itself.  These firms source, and then place people on the site of the engaging organisation under a contract between the recruitment firm and the contractor. The recruitment firms effectively act as ‘agents’ who canvas organisations to determine what needs they might have for ICT staff, locate possible staff through database searches or job advertisements, and then match their clients’ requirements to the available personnel at the time. The system works reasonably well and relieves the contractors of advertising, marketing and placement responsibilities.
So far, so good.  What is not so good is the contractual nature of the actual engagement between the contractor and the organisation that requires their services.  This is where the issue of fairness enters the equation.  What ends up happening in almost all IT recruitment situations is that the recruitment firm both sources the contractor and engages the contractor as well.  The contractor is then ‘supplied’ to their client under a services agreement with the recruitment firm.  This is primarily so that the recruitment firms can guarantee its income stream.  As long as the contractor remains on the site of the organisation then they are able to charge the organisation their placement fees and the contractor’s rate.  But recruitment firms are in fact no different to real estate agents that bring a buyer and a seller together so that the parties can contract with each other.  The critical difference in the IT recruitment industry is that the recruitment firm ends up standing in the shoes of the buyer. This means that the party that is effectively ‘buying’ the resource (the organisation) does not engage in a contract with the party with whom they are engaging (that is, the contractor), but with the agent. The principal reason for this is that in addition to all of the other benefits already outlined organisations do not want to be exposed to any employment or commercial legislation.  The contract that is signed between contractor and recruitment agent leaves the organisation purposefully removed from any legal obligation whatsoever.
It is in fact common practice for ICT contractors to rarely be engaged by the organisation that requires their services.  Most engagements generally follow one of two models: (a) contractors are ’employed’ by the recruitment firm and then contracted out to the engaging organisation or (b) contractors are engaged under a contract with the recruitment firm and then passed on to the organisation via a contract between the recruitment firm and the organisation (a ‘services agreement’).  Yet for all intents and purposes the client of the recruitment firm is effectively ’employing’ the contractor to work on its site with its own staff.  Effectively the organisation has all the benefits of an employee but has no obligations to the person whatsoever.
But the situation does not stop there. If the recruitment firm engages the contractor as a true contractor (and not as an employee) then it too wants to limit its responsibility for the contractor, so will only engage the contractor on the terms that exempt it from any obligation for workers’ compensation, professional indemnity, public liability, health care, superannuation, taxation and so forth. The important issue here is that there is confusion as to whether there is a genuine commercial contract in place or whether an alleged commercial contract has been turned into an employment contract.
This raises fundamental concerns about the relationship between ‘contractor’, recruitment firm and engaging organisation (client). The nature of the contract between recruitment firm and contractor is such that it effectively strips any commercial rights from the contractor. At the same time, it imposes no obligations on the recruitment firm or its client. The primary goal of the contract is to shift the consequences and impact of risk for every aspect of engagement on to the individual contractor. The situation readily suits the recruitment firm and the engaging organisation, but any reasonable person must consider it wrong according to the intent underpinning workplace relations legislation.
The fundamental reason for the use of the contract mechanism is to avoid any actual relationship of employer and employee —thus avoiding any of the associated obligation-generating legislation. It works very well—mainly because there is no legislation to control it. As a result it has become progressively abused by engaging organisations who want to avoid any consequence of acting fairly towards people.
In effect, the status of ‘independent contractor’ is an anomaly at law. The ’employer’ provides the facilities in the same way as it would to an employee, it imposes the same hours as it would on an employee, and applies the same performance criteria. It effectively requires the contractor to act ‘like’ an employee, yet it has no responsibility or obligation to him or her whatsoever. This is further facilitated by the relationship between the ’employer’ and the recruitment firm—something which isolates the contractor even further.
The contracts that are created between contractors and recruitment firms are, unsurprisingly, drafted by lawyers on behalf of the recruitment firms.  There is no legislation governing the way in which lawyers draw up contracts for their clients and quite obviously they will draft contracts to protect their client’s interests.  Given the outrageous nature of some of the terms in many contracts there seems to be scant ethical consideration of contractor’s rights.  In essence, this means that individual contractors face an uphill battle to engage on reasonable terms when the terms have already been developed for the recruitment firm to only protect their interests.  Amendments by contractors are rarely entertained and if they are they are generally superfluous.
To make matters more difficult for contractors is the range of practices employed by recruitment firms.  Many recruitment firms adopt the ‘convenient’ practice of withholding their contracts until the last minute—after there has been a commitment from both the engaging organisation and the contractor to take the assignment. This is done so that once the contractor has committed to taking the role with the recruitment firm’s client, there is little time in which to negotiate over the terms. At the point after an interview has been successful, there is an in-principle commitment by the contractor to take the role. To refuse the role on the basis of unacceptable contractual terms harms the contractor’s reputation and, more importantly, ability to obtain work. It also means delays which result in loss of income.  As a result the offer of contract work is provided with an assumed commitment by the contractor to take the role and, consequently, sign the contract—without ever having seen it or being given any opportunity to address it.
In many cases the recruitment process achieves its best outcome when the contractor is out of work.  This is a known, and exploited, principle by recruitment firms.  If the contractor is sitting at home not earning any income then the need to become engaged is very pressing—the bills still need to be paid. There is no sick leave, holiday leave or redundancy for a contractor. A contract is provided to the contractor on  a ‘take it or leave it’ basis. Amendments to a contract in this environment are considered unlikely at best.  Any request to have a solicitor review the contract is almost always rejected out of hand. If amendments or third party legal advice is entertained at all, then the alterations are simply rejected at the last possible moment so that the contractor is exposed to further loss of income and virtually forced to sign.
Then there are the associated delays which eat up more time and result in—that’s right—no income. Recruitment firms depend on this. For most recruitment firms, any suggestion that a contract might be altered or a solicitor engaged is seen as a warning that the contractor may be ‘difficult’ to deal with. This situation is almost always relayed to the ‘valued’ client in these terms to exonerate the recruitment firm for any delay. Besides, recruitment firms don’t want people on their books who want their right recognised—they simply want contractors to sign on the bottom line and go quietly to join the ranks of the ’employer’, albeit in an environment where the employer has no obligations to them.
Then there are the terms in IT recruitment contracts.  Several of these vary from illegal to unethical in many contracts.  It is hardly surprising that the largest section of any contract covers termination. This section basically strips a contractor’s rights down to nothing. It is not unusual to see terms which give the recruitment firm the right to terminate at any time—with or without notice. If notice is specified, then it is couched in such vague terms that a mere telephone call will do the trick. Termination can (and often is) invoked for a raft of different reasons: ranging from the insolvency of the contractor through to ‘performance’-related issues. It is staggering, for example, that a recruitment firm can terminate a contractor if the contractor is subject to bankruptcy proceedings when there is no contractual clause which allows the contractor to terminate if the recruitment firm is subject to the same. When one considers that the bankruptcy of the recruitment firm may mean that it is incapable of paying the contractor this makes the absence of a reciprocal obligation absurd. Moreover, how is the bankruptcy of a contractor going to affect his or her capacity to continue to work and be paid?
The ‘performance’-related clauses for terminating a contract are even more Byzantine. A client of the recruitment firm can simply ring up and claim that the contractor is not performing or is not suitable. The recruitment firm, concerned about maintaining its relationship with the client, will simply notify the contractor that the client has terminated the contract for performance-related reasons. There is no opportunity to resolve the ‘performance’ issue and no right of redress. The prime concern for the recruitment firm is the maintenance of its relationship with the client. There is absolutely no consideration given to the contractor’s welfare.  After all, there are hundreds, if not thousands, of ICT contractors.
Of most concern are the clauses in contracts that are simply illegal. The first type can be termed the ‘restraint of trade’ clauses. The most obvious of these is the one that prevents a contractor from engaging directly with the hiring organisation for a certain period after the current contract expires. Recruitment firms know that this clause is unenforceable, but it is still used in almost every ICT contract. It is even more of an affront when the clause is extended to ‘any related organisation’ of the client as well. This catch-all allows recruitment firms to bluff contractors so that they are unable to work for a variety of other organisations ‘related’ to their client’s business. These clauses are legally invalid, yet recruitment firms still use them to secure the ‘intent’ of the contractor.
The other typical contractual clause that demands criticism is the one that ties contractors to a particular term and then imposes damages upon them if they break it. The recruitment firms consider that the engagement contract is like a lease for a property; contractors are asked to sign an agreement that has them commit to a certain term and if they do not honour that term then they should pay damages.  Yet there is no reciprocal obligation on the recruitment firm or its client to honour that term. If the recruitment firm or its client wants to terminate (for almost any reason), then that is the end of it. If the contractor wants to terminate, then there is the exposure to damages claims from the recruitment firm and/or the client because of the failure to complete the term – even if the contractors is physically incapacitated. So much for mutuality of commercial contract!
So what does this all mean?  Basically ICT contracting and the recruitment industry is a rights free zone.  ICT contracts are simply not fair because they only serve to protect the most powerful entities.  ICT contracts will only be fair when both sides carry equal and binding obligations that are legally enforceable and mutually agreeable. No contractor enters into a contract with the intention of not doing the job that he or she is required to do. It is in contractors’ interests to do the best that they can and have the best referees possible. Recruitment firms and their clients know this.
Contractors have no ability to verify anything about the commercial viability or intentions of the recruitment firm or the engaging organisation yet they are required to bear all the risk and consequence of engaging.  They have no way of knowing the agenda of the organisation with which they are going to work, or the quality of the staff and management,  and precious little about the recruitment firm or even its ability to pay. Contractors may end up in an organisation that wants them only until their knowledge has been transferred to the organisation’s staff and then their contract is conveniently terminated with no recourse whatsoever.  While an employer can check a contractor’s referees, his or her CV and make any number of enquiries, the contractor has no avenue open to him or her to verify anything about the organisation that he or she will be working in. If a contractor is unfortunate enough to work in an organisation with a psychotic manager or disgruntled staff, then the contract can be unbearable. Terminating it is not as simple as it may sound, when one considers that one’s actions will not only damage the relationship with the recruitment firm but also with the organisation that is needed to provide a positive reference.   A contractor’s reputation is their key trading mechanism and is something that must be protected if future income is going to be possible.
The clients of recruitment firms are effectively isolated from the contractor so that there is little ability for the contractor to find out anything about the organisation.  In some situations a contractor is engaged to do a job that no one else employed by the organisation has been able to do yet the contractor has no way of knowing that they are being set up.  It is highly unlikely that the recruitment firm will ever divulge that their client has already burnt three contractors.
Then there is the unscrupulous behaviour of some firms.  It is a widely known fact that many prominent consulting firms engage contractors in order to demonstrate to a client that they have the resources to be able to meet the client’s demands.  If they don’t win the business or if costs start to rise during the engagement they quickly divest themselves of the contractors.  It is an unfortunate fact that it is becoming more frequent for contractors to be terminated because an organisation needs to make a sudden reduction in costs.  Some of the countries largest and most well known organisations are regularly divesting themselves of contractors with no compensation or even recognition of the hardship caused.  Yet the public never hears of these situations because the contractors can’t do anything about it – exactly the intent of the contractual relationship.
Recruitment firms will argue that all of the foregoing is the reason why contractors are paid the ‘big bucks’. The rationale is that if you take on all these obligations and risks, then you can demand a higher rate of remuneration. One would have to query whether high risk justifies behaving unethically, but at the crux of this issue is whether the contracts are fair.   Is it fair to have contractors take out workers’ compensation to cover themselves against a workplace accident where the environment (not of their own making) might be unsafe? Is it fair to impose public liability insurance on contractors when the premises at which they operate are not their own? Is it fair that contractors can be sued for professional negligence when they take directions from the client in the same way that employees do? Is it fair that a contractor loses the ability to earn an income because of illness or injury suffered as a direct consequence of their interaction with the organisation? Is it fair to terminate a contractor for non-performance reasons with no right of redress?  Is it fair to terminate someone’s livelihood simply because of commercial expedience?  Is it fair to make people sign contracts that are written solely for the protection of the more powerful entity?  Is it fair that organisations can act with complete impunity against individuals?  What ever happened to the principle of acting equitably and honourably?
In the final analysis, contractors are being asked to bear all of the risk in these relationships. But contractors are normal people who need to pay the mortgage, send the kids to school, buy food and establish a future. What are the consequences for the engaging organisations? None. What are the consequences for the recruitment firm?  None.
So why contract? Why work in an environment that poses so much risk? Those not familiar with the ICT industry will simply respond that it is because the money is so good—ICT contractors are highly paid and so must accept the risks. This argument might be plausible if contractors were able to earn a full year’s income from year to year, but most don’t. They also don’t receive any income when they become ill, take leave to go on holidays, or re-train.
Contracts don’t grow on trees. Despite all the careful management of one’s career there are gaps between contracts—sometimes long gaps of several months. As for the rates of remuneration, they are not as outstanding as many outsiders may think.  The young hot shot that is driving around in the BMW today may be a dinosaur in five years time in the rapidly evolving technology market.  In reality, those who have been around for a while know that contractor rates end up being equivalent, over the long term, to a permanent salary once all of the costs (more than simply financial) are considered. What may seem to be great money at the time turns out to be not so attractive when you want a holiday or need training or fall sick or have a contract abruptly terminated. Then there are the ever-increasing costs for insurances and exposure to litigation, not to mention the drudgery of taxation and superannuation requirements. What looks like an exceptionally good income can become modest at best with the exigencies of contracting.
Of course, no-one forces anyone to contract. There is always the option to take up permanent employment, but in this age of workplace agreements and the marginalisation of employment law, the option to ‘go permanent’ is not a huge step forward. Besides, companies don’t always want ICT people as permanent employees for the reasons previously cited. The end result is that there is a large body of ICT contractors who work the way that they do because that is what the market wants. But this should not mean that organisations and recruitment firms can abrogate their legal and ethical responsibilities. The only strategy for contractors to protect themselves is such an environment is to pretend, or suggest, that they are available to other recruitment firms so that there is some insurance against the loss of the current contract. This harms everyone’s business—organisations cannot rely on the contractor’s staying, recruitment firms have high turnover rates, and so on.
Fair contracting means that both sides enter an agreement with the intention of doing exactly what is expected. This means that both sides need to accept a certain amount of risk and act in a way that looks after each other’s interests. There is nothing complicated about acting fairly. Fairness is based upon the principle that both sides are receiving equal and acceptable treatment. We live in a country where the ‘fair go’ implies that people will be given every opportunity to achieve the most that they can. We pride ourselves on treating others as we would like to be treated ourselves – don’t we?
The current situation where engaging businesses protect themselves from contractors and act with apparent impunity is not only unfair but is also morally reprehensible. But then how can they be expected to act when they have no leadership from any other sector to follow? There is scant leadership from Government who are quite often the worst abusers of the system.  In addition our politicians have basically ignored the problems in this murky area of ICT contracting and seem intent upon further removing employee rights wherever possible.  If this is a fair situation in a country where the fair go is prized as being part of our cultural identity, then something has clearly gone wrong.
There is a growing dissatisfaction within ICT contractor ranks with the current situation. Why is it that fewer contractors are prepared to relocate? Why is it that there are huge skills shortages? Why are the peaks and troughs in availability becoming so extreme? Why is it that so many ICT contractors would rather being doing anything else than ICT contracting?  Without exception, the more skilled and experienced contractors only want to leave the profession. Those who remain are either very young and naïve, demoralised, or pensive about the uncertainties that pervade the industry. The end result is that businesses are not really obtaining what they want and paying for it in more ways than simply remuneration.
So where is the solution?  Recruitment firms simply blame the ‘unfair contracts’ that they have to sign with their clients. Their clients blame work place legislation.  Each year the exposure to various legislation increases for business and each year the boundaries are being pushed a little further to make contracts even more water tight.  In this type of environment there needs to be leadership from someone.  Don’t we expect that from Government?
The ICT contract market has been a free-for-all for more than two decades, but if it is going to exist in the future and attract qualified and competent people, then it needs to be attractive rather than a cut-throat, mercenary, no-rights environment. In the end, the way in which people are treated will determine the way that they act—and this can only benefit business, the community and the country in general.

Context statement from our Guest Blogger:

I saw your reference on the ICA site and I was really pleased to see that there is someone out there that is trying to do something like myself.  I have been trying to use the ICA, APESMA and other avenues (DEEWR, Minister etc) to change things but it is tough.

While I believe that recruiters are useless and should not exist, my main concern is the way that the whole sham has been constructed.  Recruiters exist because the government and private enterprise want to escape employment law.  It is probably one of the biggest shams operating and manages to exist because it is a convenient way to subvert the law.  I don’t need to explain how recruitment firms have contracts drafted to completely isolate themselves from any legal reprisal from contractors but the fact that an “agent” is between the contractor and the organisation means that the contractors cant get to the organisation either.  I have experienced and heard numerous stories where contractors are shafted and they have no come back whatsoever.  The system uses people like office furniture.

My biggest concern is to make both recruiters and organisations jointly and severally liable for their conduct.  Watch how many recruiters stay around when they know they can be sued.

You are right that organisations should do the recruiting and manage the relationship but they want to hide behind recruiters to avoid legal culpability.  The government wont change the situation because they want the same protection. Think about it, we live in a society that espouses fairness and justice for workers yet the contract environment is a complete contradiction.

The government claims that the Independent Contractors Act and the Fair Work Act will redress injustices but we all know what happens to any contractor that seeks legal action!!  My solution is to have a standard form engagement contract that gives contractors defined rights.  One right that needs to be insisted upon is that a contract for a term is a contract for that term.  If you sign a 6 month contract then it cannot be terminated after 3 or 4 months without the organisation paying the balance of the contract.  Is this too much to ask or have we been conned into thinking that while we commit to the term organisations are exempt?

Anyway, I applaud your effort and hope that many of the sheep out there eventually wake up.


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Written by evenitup

July 5, 2009 at 1:13 pm

Posted in Guest blogger

Tagged with , , ,

If real estate can be regulated, why not recruitment?

with 2 comments

Even It Up! came across this brief article in today’s ‘Tiser, and thought: why is the same thing not happening in recruitment?  It’s a similar high stakes industry but deals people’s livelihoods and careers, rather than houses:

‘Rogues’ on Notice

South Australia’s peak real estate body is cracking down on industry “rogues” by launching a public complaints* process.

The Real Estate Institute of SA now will receive complaints from the public where an alleged breach of the real estate code has occurred.

Previously all complaints were referred to the Office of Business and Consumer Affairs.  The ReiSA’s process may involve third-party mediation or a hearing before a professional standards committee headed by former House of Representative Speaker Neil Andrew.

From our perspective, this raises some interesting parallels, and we ask the following questions:

  • Why does the recruitment industry not have a similar code of professional conduct that all recruiters are required to abide by?
  • Why is the recruitment industry not overseen by a body that has some power to weed out rogues?
  • Why does the government not view recruitment with the same concern as it perceives real estate?
  • When corporate Australia is increasingly courting corporate social responsibility, why is ethical practice by recruitment companies never discussed other than in a tokenistic, cliched way?
  • Why are there no penalties for unethical practice?

Even It Up! is pretty sure readers have extra questions that can be added to the mix.

* ReiSA’s complaints process requires that complainants complete a statutory declaration, accompanied by a $200 lodgement fee. Somehow, we think ReiSA would get more complaints if there was no fee.  But maybe it’s their way of wokring out whether people are serious?

Written by evenitup

July 4, 2009 at 12:13 pm