A boutique legal firm in Queensland recently found itself on the wrong side of Australia’s workplace relations regulator, after engaging – and later terminating – the services of their legal assistant, Joanna Pascua, an independent contractor based in the Philippines.
In September, Pascua successfully took the firm to the Fair Work Commission for unfair dismissal.
Her case hinged on the argument that she was an employee, despite living and working abroad.
The legal firm argued that an unfair dismissal claim could only be made by an employee, which Pascua was not. It also claimed that as a small business with less than 15 employees, the unfair dismissal rules did not apply.
But the Fair Work Commission found no basis to exempt the firm from the claim, and ruled that an employment relationship existed, entitling Pascua to remedy and compensation (an appeal has since been lodged against this ruling).
Why is this controversial?
This case has been the catalyst for many professional services firms to review their outsourcing arrangements.
According to research by the University of NSW Business School, over 30,000 Australian companies outsource some business functions to other countries.
An increasing number are financial advisory firms looking for support in areas such as administration, bookkeeping and paraplanning.
Neighbouring countries like the Philippines and Vietnam are popular locations, given their high English fluency, similar time zones and skilled talent pool.
There are numerous ways to outsource work offshore, including through the gig economy, however, the two most common ways are direct engagement or through an intermediary that employs local people through a local corporate entity. Both models have their advantages and disadvantages.
In the case of the legal firm, it engaged Pascua directly.
She was allocated tasks daily, liaised with clients and suppliers, and invoiced the company weekly.
The arrangement the firm had with Pascua was not dissimilar to the arrangements other professional advisory firms have with offshore independent contractors, which is why the case has captured the industry’s attention.
It highlights how easy it is to fall foul of Australia’s increasingly complex and ever-changing employment legislation.
Ironically, a common reason that businesses give for going direct is to give contractors a better deal. By cutting out the intermediary, they can pay more without increasing their costs.
What sometimes happens in financial planning is that firms initially seek guidance and support from a specialist outsourcing provider to help them recruit, train and manage offshore talent but as they become more familiar and confident with their offshore people, they transition to direct arrangements.
By doing so, they take on additional risks.
Not only are offshore contractors potentially considered national system employees and protected by Australian legislation – but businesses are also exposed to risks including local taxation laws, business continuity, ethical treatment of offshore people including adherence to Modern Slavery Act, cyber security risk, and the validity of cyber and professional indemnity insurance.
Then there’s the risk of losing a person that they’ve spent time, energy and money training and not being able to replace that person quickly.
This risk is part and parcel of running a business, and applies equally to local employees and offshore contractors.
But specialist outsourcing companies manage this risk on behalf of their clients, as well as other value-add activities like proactively monitoring market rates and remuneration packages to ensure that their employee value proposition remains competitive. They provide ongoing education, training and development and can also provide career advancement opportunities because of their size and broader network.
While partnering with an experienced outsourcing company with on-the-ground operations may add a layer of cost, it also adds a much-needed layer of protection for both businesses and offshore people because risks are managed at scale and to a high standard.
This support is crucial for advice businesses, given the enormous amount of regulatory and structural change they’re already navigating.
It is also increasingly important given the increasing volume and complexity of work being outsourced.
This trend will only continue, as demand for professional advice increases, amidst a local talent shortage.
The demand/supply dynamic, alongside Australia’s high labour costs and high cost of living, will underpin the long-term growth of outsourcing, making it imperative for businesses to understand and manage associated risks.
Nathan Jacobsen is chief executive of Vital Business Partners, which is owned by AZ NGA.
