The Labour Inspectorate is lining up its first two scalps as it cracks down on alleged widespread exploitation of workers in the Chorus-driven Ultrafast Broadband (UFB) fibre rollout.

The watchdog has lodged cases with the Employment Relations Authority (ERA) against two Chorus subscontractors: Sunwin Technologies and Babylon Communications, the agency's National Manager Stu Lumsden tells the Herald.

Dates for hearings have yet to be set.

On October 8, following an investigation carried out in tandem with Immigration NZ, the Inspectorate alleged that 73 of 75 subcontractors involved in the UFB rollout had systematically failed to meet minimum employment standards.

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It alleges some staff have been paid below the minimum wage and not received holiday pay, while others have worked extended trial or "volunteer" periods for no pay, among other breaches of labour laws (the specific Sunwin and Babylon charges are detailed at the foot of this story).

Sunwin is owned by Phani Chevendra and Ramesh Koney, both of West Harbour, Auckland and has subcontracted to Universal Communications Group (UCG), one of Chorus's "primary" contractors.

"We are extremely disappointed in the early findings of the Labour Inspectorate," Chorus CEO Kate McKenzie says. But in legal terms, the buck stops with her company's subcontractors. Photo / file.

Babylon is owned by Sameer Ibrahim (aka Sam Abraham) and Mehad Mahdi, both of Howick. It trades as Clearvision and has subcontracted to both UCG and Chorus's other main primary contractor, Visionstream. Abraham denies any of his company's workers were exploited. He told theHerald that the issues identified by the Inspectorate could be explained by unintential technical errors.

Lumsden expects to bring more cases as the Inspectorate's followup work continues.

He says the Inspectorate has also so far issued 10 infringement and nine improvement notices to Chorus subcontractors in what Lumsden calls "less complex" cases.

Think Chorus is in the gun? Think again

Chorus was hit by more bad news last night about its subcontractors, including a new allegation that a manager at one of its UFB partners took bribes to approve linesmen to carry out work.

Its investors' reaction? A shrug.

Chorus shares were actually up 0.84 per cent to $4.80 this morning, continuing their broad march north (the stock is up 20.08 per cent for the year).

The reason: the subcontractor episode is bad PR for Chorus, but it's not directly in the gun in legal terms.

Labour Inspectorate national manager Lumsden also had angry words for the network operator on October 8, when his agency said it had found alleged violations of labour laws at 73 of 75 subcontractors involved in the Ultrafast Broadband (UFB) fibre rollout.

"Large companies such as Chorus need to be proactive and ensure that their contractors and subcontractors are not exploiting their workers," he said.

"It's very disappointing that a national infrastructure project of this scale which is well resourced has failed to monitor compliance with basic employment standards."

But it it also seems that Lumsden had identified moral and organisational failings by Chorus, rather than legal ones.

"The Labour Inspectorate has no current evidence of Chorus itself breaching Employment Standards," Lumsden said.

The Labour Inspectorate's inquiries are ongoing, but so far there's been no indication that Chorus is in its cross-hairs.

"The Labour Inspectorate's investigation is currently looking specifically at breaches by subcontractors," Lumsden confirmed today.

The reason: The network has placed itself at two arm's length from the trouble.

The arrangement is illustrated by one of the cases that first kicked off the subcontracor controversy, involving one Wilem Brown, of Nelson.

Chorus was awarded the UFB contract for Nelson. As in all the UFB areas it controls, Chorus farmed out most of the work to one of its primary contractors. In this case, Australian company Visionstream. Visionstream, in turn, subcontracted to a series of smaller players, Frontier Communications, who took on Brown.

Frontier allegedly paid Brown less than the minimum wage, according to the E tū union, who brought his case to light last December, drawing in the Labour Inspectorate in what eventually became a sweeping, industry-wide investigation.

It was a complex chain of subcontracting, but a simple case of law, according to employment specialist Jennifer Mills.

Mills said that the buck stopped with Brown's immediate employer, Frontier Communications.

"Chorus is not legally responsible for any liability arising from the breaches identified by the Labour Inspectorate," employment lawyer Jennifer Mills says.

The same applies to the alleged breaches publicised in October.

"The breaches identified by the Labour Inspectorate are requirements under the Employment Relations Act 2000 and the Holidays Act 2001. These statutes confer rights on employees only. As such, the individuals' employers will be responsible for any identified breaches of the employment standards contained in the legislation," Mills says.

"The rights and obligations under the Employment Relations Act 2000 and the Holidays Act 2001 are dependent upon the existence of an employment relationship. The legislative provisions are applicable between an employer and an employee. By contracting out the service and the work, there is no direct relationship between Chorus and the individual workers who are performing the work. As such, Chorus is not legally responsible for any liability arising from the breaches identified by the Labour Inspectorate."

However, Chorus may have health and safety obligations under the Health and Safety at Work Act 2015 as a "person conducting a business or undertaking," she adds.

"This would depend on the facts in each situation. Under this legislation, Chorus would have a duty to eliminate the risks to health and safety, so far as is reasonably practicable, to the extent that Chorus has the ability to influence and control the health and safety risks in the person's work environment. Practically speaking, Chorus may not be in the best position to manage the health and safety risks, but the legislation may require Chorus to take active steps to consult and cooperate with the contractor companies on their compliance with the health and safety obligations."

Of course, any financial malpractice allegations that embroil staff at a primary contractor or even Chorus itself would colour the picture. But the allegations of under-payment, "volunteer" work by trainees and holiday pay going begging all land at the bottom of the UFB foodchain, where the subcontractors sit.

Workplace Relations Minister Iain Lees-Galloway's employment law reforms have been watered-down and delayed by more conservative coalition partner NZ First. Photo / Mark Mitchell.
Workplace Relations Minister Iain Lees-Galloway's employment law reforms have been watered-down and delayed by more conservative coalition partner NZ First. Photo / Mark Mitchell.

For its part, Chorus has chosen its words carefully, emphasising that it expects its contractors to meet their legal obligations, but avoiding any statements that would imply it is liable for their actions.

"We are extremely disappointed in the early findings of the Labour Inspectorate," Chorus chief executive Kate McKenzie said on October 9.

"Clearly this is potentially an extremely serious issue and widespread breaches are absolutely unacceptable."

Her company had retained former Deputy State Services Commissioner Doug Brown to conduct an independent review, she said (the review is ongoing). But in keeping with the sub-contractor model, it would not be a review of Chorus or its primary contractors but of "the employment practices of small business subcontractors working on the Ultrafast Broadband network."

Lumsden weighs in that, "The Inspectorate is managing its own investigations to ensure they continue unimpeded by Chorus' own investigation processes."

October 9 also saw Workplace Relations and Safety Minister Iain Lees-Galloway launch into the controversy, saying, "The Labour Inspectorate's investigations into Chorus subcontractors and its findings justify the Government's priorities to strengthen employment law, to better protect New Zealand workers and stamp out migrant exploitation."

But in fact, Labour's attempt to strengthen employment law has since been watered down at the behest of its more conservative coalition partner NZ First, while a push to bolster protections for contract workers has been pushed out to an unknown point next year.

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Labour Inspectorate claims against Sunwin Technologies:

• Failed to provided written individual employment agreements in accordance with s 65 of the Employment Relations Act 2000 (ERA 2000) to five employees

• Failed to maintain wages and time records in accordance with s 130 of the ERA 2000 for five employees.

• Failed to pay the minimum wage for every hour worked to six employees in breach of the Minimum Wage Act 1983

• Failed to pay annual holiday pay to five employees in accordance with s 23 to s 25 and s 27 of the Holidays Act 2003 (HA 2003)

• Failed to maintain compliant holiday and leave records in accordance with s 81 of the HA 2003

Labour Inspectorate claims against Babylon Communications, trading as Clearvision:

• Failed to make payment to five employees for their work at not less than the minimum rate of wages as required by section 6 of the Minimum Wage Act 1983.

• Failed to keep full and accurate wages and time records for its employees as required by sections 4B and 130 of the ERA 2000