Chorus has black-listed 22 companies from subcontracting to its ultra-fast broadband service providers, after an audit found many did not have systems to ensure staff were paid correctly.

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The audit was carried out at the same time as an independent report into Chorus and its service providers Visionstream and UCG.

Chorus' board commissioned consultants MartinJenkins in October to investigate its subcontractors' employment processes. That came after a Labour Inspectorate report found 73 of 75 Chorus subcontractors systematically exploited workers.

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The MartinJenkins report was released today and found Chorus and its subcontractors should have done more to identify and mitigate the risk of breaches in employment law, particularly when it came to migrant workers.

In a briefing on the report, Chorus chief executive Kate McKenzie revealed it had not been sitting on its hands over the past six months.

"We have been doing a full audit while the report was carried out and this is well advanced. As a result of that 22 companies have been black-listed."

McKenzie said the company had been working with the Ministry for Business, Innovation and Employment, the Labour inspectorate and Immigration NZ to set up a process to move workers from non-compliant companies to ones that were compliant.

Some 26 workers had been through the process and 21 had been "re-homed" to other employers.

McKenzie said nine of the 22 companies were not previously identified in the Labour Inspectorate process and some of those companies were facing legal action by the inspectorate.

She said the basis for the black-listing was that the companies could not demonstrate that they had the appropriate systems and paperwork to manage staff.

"The view that UCG and Visionstream took after questioning was if they couldn't produce the right data, they weren't going to have them in their supply chain anymore."

Worker compensation

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Workers who had been identified as not being paid properly were being moved to companies that would pay them correctly.

McKenzie said it was the subcontractors' legal obligation to pay the workers. Where Visionstream and UCG had found shortcomings, they had gone back to subcontractors and nine times out of 10 the subcontractor had made things right.

But, she added, in the rare occurrence where the person was not paid, Chorus had set up a trust fund to compensate them, although it had no legal obligation to do so.

McKenzie said the report had found there was enough money in the system for all workers to be paid what they needed and it was not a case of the financial model causing the issues.

And she said Chorus would be keeping an eye on the situation, because of some cases where it was concerned that too much risk was being passed down to an individual technician.

McKenzie said there were some commonalities in the 22 companies; there had been a certain ethnic mix which had been dominant, with people from one country employing people from that country.

However, she said others had done the same thing but had done a good job.

"A lot of it is, people just don't know what they should be doing or this is the first time they have run a small business and they don't have the expertise."

McKenzie said Chorus would spend the next six months focusing on bringing new initiatives which included developing a supplier code of practice.

She said UCG and Visionstream had committed to hiring people with employment relationship expertise and Chorus would be making sure it followed through with contract and supply chain management checks after the signing of contracts.

There would be pre-qualification criteria for new sub-contractors and an "onboarding" programme for the technicians, for many of whom English was their second language.

Employment contracts would be offered in that person's language and it would launch an independent whistle-blowing system, McKenzie said.

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Part of the problem identified in the report was that workers did not feel comfortable pointing the finger at their employer over issues, because their visa only allowed them to work for that employer.

McKenzie said it was talking to the Government about whether workers might not need to be tied to one employer for visas, so they could move around the industry and work for employers who were doing the right thing.

The report found the adoption of a subcontracting model for the delivery of the ultra-fast broadband network was appropriate and that the use of migrant workers by Visionstream and UCG was both expected and reasonable given the significant demand for labour and the time-limited and one-off nature of the work required.

But as the proportion of migrant workers increased, the subcontracting model became increasingly vulnerable to the risk of labour exploitation.

"This risk was not well understood nor adequately managed by Chorus, Visionstream or UCG."

It found the approach taken to the risk was not "sufficiently adequate" given the complex nature of migrant exploitation.

"The subcontracted model has been applied by Visionstream and UCG in such a way that the risks associated with volatility of demand for UFB connection may be disproportionately borne by the end technician."

McKenzie said Chorus underestimated the risk as it emerged, instead focusing on productivity, health and safety and meeting the demand from consumers to roll out the UFB quickly.

"When issues arose we relied too heavily on the assurances given, which are not appropriate checks in a situation where there are a large numbers of migrants."

MacKenzie said it would make the necessary changes to ensure fairness in line with employment laws, no matter where in the supply chain workers were contributing.