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Sham Consulting

Bruce Barbour - July 2018

I am sure you have heard of sham contracting but what about sham consulting?

In the past I applied for a temporary position with an organisation that I had previously worked for in both a temporary and permanent capacity. The organisation directed me to sign up through what I thought was a agency that supplied temporaries (the "Agency"). I satisfactorily completed all the registration processes that they required me to do - filling in multiple forms and doing a short online course. Then the Agency sent me an agreement to sign - what I thought would be an employment contract.

All fine up to this point but then I started to read the agreement that they had sent me. It was a consultancy agreement! I was shocked. They were expecting me to sign on as a consultant - however the hourly rate offered in no way reflects the added risks and responsibilities of a consultant. There is a large difference between doing work for an organisation as a consultant compared to working as an employee, either as a temporary through and agency or on staff.

In more detail my main objections to the Agency agreement document were:
  • It would class me as a “consultant’ – signing the agreement would have meant that I agreed to that definition. I am not and never have been a consultant and do not want to be a consultant in the future. Consultants have liabilities totally beyond what an employee has.
  • It would require me to indemnify not only the Agency but also the organisation that was going to be utilising my services. This arrangement is typical of a consultancy agreement but the complete reverse of the normal employer / employee relationship – where the employer typically indemnifies the employee.
  • It would require me to have both public liability and professional Indemnity insurance. I do not have these so would be an additional cost. The Agency said that I would be covered by their insurance policies while I worked though there is some wording in the actual document that would make we wonder whether I would have been be covered. (I would have needed to get legal advice on that.) However even if I was covered while I was working I would not be covered after the temporary engagement stops – there was a clause to that effect in the agreement. The issue with this is that for professional indemnity insurance the cover ceases once the insurance policy lapses. It is usual in contracts with consultants to require that the consultant maintains professional indemnity insurances for a period of up to 7 years after the cessation of work. In my earlier employment  I have put together many consultancy agreements for organisations that I have worked for which have this requirement. If there was a professional indemnity issue it may not raise its head for a couple of years. So in my case I would have had perhaps up to 6 months of work and then have to maintain – that is pay for – professional indemnity insurances for up to 7 years – or take the risk (admittedly a very small likelihood – but the consequences devastating if a risk event occurs.) 
If I had signed I would have taken on all this additional risk – and all this for an hourly rate that I would have expected as a temporary employee through a normal temporaries agency. There is a reason why genuine consultants charge in the $100s per hour. They take on risk, they have the insurances in place to protect themselves and their families. If a person was a genuine consultant, with the insurances etc. in place and prepared to take on the associated risk – undoubtedly with the associated higher hourly rate - the proposed agreement would have been fine.

It is wrong to expect a normal person who is not a consultant and is just looking for temporary employment to sign the Agency agreement. I told the organisation that I was meant to be working for that there was no way that I would be signing that agreement and if they wanted me to provide services to their organisation they would have to either engage me through a genuine temporaries agency or engage me as a direct temp or casual on the organisation's staff. Or I would not work for them.

They quickly got me signed up through another temporaries agency and I commenced work with them for a short term assignment.

So this worked out alright for me - I was employed through a legitimate temporaries agency as a legitimate temporary. But that was because I knew about the differences between working as an employee and working as a consultant and was prepared and able to stand up for what was right. I was also in a position where I was quite prepared to, and financially able to, walk away from the job if I had to. My concern is for others who are working for the organisation through the Agency ultising these "consultancy" agreements who are not real consultants. I know that at the time there were quite a few doing a range of works in the organisation, much of it not professional work. And I would think it was quite likely that the Agency used this model to supply temporaries to other organisations as well.

(I understand that the Agency initially started out as offering a payroll and charging service for sole trader or smaller partnership consultants - so  the consultancy agreement in these situations was quite appropriate. The Agency would be providing a service to the consultant - taking over the annoying administrative work of charging the client. At some stage they must have seen what they thought was an opportunity to expand the numbers using this service - into the temporary employees market. However they did not change the agreement into one more appropriate for temporary employees through an agency.)

In my opinion if they supply temporary employees through this arrangement it is nothing more than sham consulting. I am not a lawyer but this is bordering on unconscionable conduct by the Agency. And the organisations that use workers from the Agency engaged under this arrangement are complicit in this. All this presumably to save a few dollars.

I do not know whether the Agency still adopts this practice for temp employees - I am sure they were informed that I thought it was not appropriate. If they do it is a concern to me. And also - how wide spread is this practice across the broader work force? Do other agencies also do this? This sham consulting needs to be stamped out, along with sham contracting.

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