Investors are well tuned to the risk of an economic slowdown in China, the global trade war and fluctuating exchange rates, but there may be a new risk on the horizon that could threaten the share prices of a wide range of S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stocks.
The federal court case in August that could converts an army of casual workers into full-time employees has barely scored a mention in the market, but it could shake up the labour market and threaten the profitability of industries that heavily rely on contractors.
This issue could present a new threat to the Rio Tinto Limited (ASX: RIO) share price, Downer EDI Limited (ASX: DOW) share price, Regis Healthcare Ltd (ASX: REG) share price and JB Hi-Fi Limited (ASX: JBH) – and that’s only the tip of the iceberg.
The court case involves a casual mine worker supplied by labour-hire firm WorkPac who sued after he was fired with an hour’s notice.
The court found in his favour and ruled that he should be entitled to the same benefits as full time workers, which includes annual and sick leave.
This isn’t the first time the courts have ruled in favour of casual workers who have been working with the same company for years and have little control over their work schedule.
These workers are paid a casual loading, but many may now be able to claim additional benefits that will increase the labour costs of several ASX stocks across a range of industries.
Coincidentally, BHP Billiton Limited (ASX: BHP) announced that it was bringing back up to 350 jobs under its wing that are currently filled by contractors at its joint venture BMA coal mine, while Rio Tinto recently warned of rising labour costs.
Sectors Most Exposed
The mining giants can at least wear the burden thanks to their strong balance sheets and relatively healthy commodity prices.
The same may not be true for retailers – another industry that depends heavily on temporary workers with little control over when they can work (at least not without the risk of getting fired).
The retail sector is already under strain from intense price competition and patchy consumer spending due to weak wages growth and a falling property market.
Aged care facilities operators could also be in the firing line as they also use contractors and can ill afford to deal with this threat as the sector is about to front a Royal Commission.
Engineering groups and labour hire firms may also be under this dark cloud and I am thinking of the likes of Spotless Group Holdings Ltd (ASX: SPO) and its majority shareholder Downer EDI.
It’s too early to panic but this is an emerging issue that investors should be keeping a closer watch on as it can take a big bite out of company profits when you least expect it.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.