Overview
The Federal Government has now passed its third tranche of landmark IR reforms in the form of the Fair Work Legislation Amendment (Closing Loopholes) Bill No 2 2024.
This update will deal with the following changes to the Fair Work Act 2009 (Cth) (Act) introduced by the Closing Loopholes Legislation:
- The introduction of the so-called ‘Same Job, Same Pay’ (now branded ‘Closing the Labour hire loophole’) regime whereby parties will be able to apply for a ‘Regulated Labour Hire Arrangement Order’ which would entitle employees performing work for a host corporation (e.g., through a labour hire or service arrangement) to the same pay as an enterprise agreement covered employee of the host corporation.
- The criminalisation of wage theft.
- New entry rights for unions.
- New training payments for workplace union delegates.
- Bargaining changes including substantial changes to how arbitration of bargaining disputes will be conducted where bargaining reaches a stalemate.
- Measures to address the impact of the small business redundancy exemption in winding up scenarios under the Fair Entitlements Guarantee.
Through our unique position in consulting with government and advising a range of peak and industry bodies on legislative reform and policy matters, we are pleased to share our insight and update clients on the specific details of the changes and the impact these changes are likely to have on businesses.
The Introduction of the so-called ‘Same Job, Same Pay’ Regime
One of the most publicly controversial aspects of the government’s reform agenda has been the so-called ‘same job, same pay’ reforms.
The actual reforms contained in the Closing Loopholes Legislation allow parties to apply for ‘Regulated Labour Hire Arrangement Orders’ pursuant to new Part 2-7A of the Act.
‘Regulated Labour Hire Arrangement Orders’ are orders requiring the employer providing labour (the labour hire company) to pay the applicable rate of pay under the host employer’s enterprise agreement.
Broadly, this reform will mean that where an enterprise agreement covers a particular type of work at a host employer, orders can be made requiring (labour hire) employees provided to the host employer to be paid the pay rates in the host employer’s enterprise agreement, even though they are not direct employees of the host employer or technically covered by the host employer’s enterprise agreement.
This reform is aimed at ensuring that so-called ‘bargained rates’ cannot be undercut through the use of outsourced labour.
The most obvious scenario where this might apply is where a labour hire worker performs work for a host employer in a role performed by the host employer’s own employees and that host has an enterprise agreement covering that work (most likely with the host employer’s employees working alongside the labour hire employees).
By way of high-level example:
Labour Hire Company A employs Employee who is supplied to perform work for Host Corporation B.
Host Corporation B has an enterprise agreement that covers the kind of work being performed by the Employee.
Where it is ‘fair and reasonable’, the Fair Work Commission will now have the ability to order that Labour Hire Company A pays the Employee in accordance with the enterprise agreement of Host Corporation B.
Host businesses will be required to take reasonable steps to facilitate compliance with the new regime (providing information about their enterprise agreement classifications and pay rates).
Significantly:
- ‘Regulated Labour Hire Arrangement Orders’ only apply after a successful application from a union or employee i.e., employees will not become entitled to a new rate of pay unless an application is made to the Fair Work Commission and a Regulated Labour Hire Arrangement Order is actually made. Nothing is automatically happening.
- Regulated Labour Hire Arrangement Orders cannot be made where the host employer is a small business (fewer than 15 employees).
- ‘Regulated Labour Hire Arrangement Orders’ can only be made where the Fair Work Commission determines it is fair and reasonable to do so having regard to the following considerations:
(a) the pay arrangements that apply to employees of the host (or related bodies of the host) and the employees;
(b) who the enterprise agreement applies to and the rate of pay payable;
(c) whether the performance of the work is or will be wholly or principally performed for the provision of a service
rather than the supply of labour to the host, having regard to:
(i) whether the employer of the employee is involved in the performance of the work (as opposed to the host);
(ii) the extent to which, in practice, the employer (or a person acting on behalf of the employer) directs,
supervises or controls the employees when they perform the work, including by managing rosters, assigning
tasks or reviewing the quality of the work;
(iii) the extent to which the employees use or will use the system, plant or structures of the employer to
perform the work;
(iv) the extent to which either the employer (or another person) is or will be subject to industry or
professional standards or responsibilities in relation to the employee;
(v) the extent to which the work is of a specialist or expert nature; and
(vi) the extent to which, in the circumstances, the host employs, has previously employed or could employ
employees to whom the enterprise agreement applies, applied or would apply.
(d) the history of industrial arrangements applying to the host and employer;
(e) the relationship between the employer and the host, including whether the related bodies corporate are
engaged in a joint venture or common enterprise;
(f) the terms and nature of the arrangement under which the work will be performed, including:
(i) the period for which the arrangement operates or will operate; and
(ii) the location of the work being performed or to be performed under the arrangement; and
(iii) the industry in which the host and the employer operate; and
(iv) the number of employees of the employer performing work, or who are to perform work, for the host
under the arrangement; and
(g) any other matter the Fair Work Commission considers relevant.
On their face value, the provisions appear to favour the making of a ‘Regulated Labour Hire Arrangement Order’ in circumstances involving traditional labour hire arrangements where the labour hire employee simply works as part of the hosts workforce in most respects unless the Fair Work Commission considers it would be unfair or unreasonable to do so.
The reforms now exclude the possibility that a contract wholly or principally performed for the provision of services rather than the supply of labour will be subject to a ‘Regulated Labour Hire Arrangement Order’.
By way of high-level example:
Corporation B, who is covered by an enterprise agreement, outsources a function, say cleaning and catering, to Employer A.
An Employee works for Employer A performing catering and cleaning for Corporation B.
Provided the arrangement is a genuine outsourcing arrangement, the FWC will not be able to issue 'Regulated Labour Hire Arrangement Orders’ in relation to the outsourcing.
While the law concerning these provisions is developed, we suggest it would be prudent to seek advice on all major outsourcing activity you are considering where you have a pre-existing enterprise agreement covering the outsourced work.
The Regulated Labour Hire Arrangement Order regime comes into force from 1 November 2024, although applications can be made before this date.
An Obligation to Pay
Importantly, the relevant obligation under a Regulated Labour Hire Arrangement Order will be to pay the ‘Protected Rate of Pay’ - not simply to apply all the terms of someone else’s enterprise agreement.
The Protected Rate of Pay is defined as the full rate of pay (including loadings, allowances, overtime and penalty rates etc) that would be payable to the employee if the host employment instrument applied to the employee.
If an employee subject to a Regulated Labour Hire Arrangement Order is a casual employee and the relevant enterprise agreement does not provide for casual rates, the Protected Rate of Pay for the regulated employee will be the enterprise agreement base rate of pay plus 25%.
To add a further level of complexity, the Fair Work Commission can also make orders about an alternative Protected Rate of Pay.
Where a Regulated Labour Hire Arrangement Order provides for a Protected Rate of Pay that is unreasonable (including for example the rate would be insufficient or excessive for the work) the Fair Work Commission can require an alternative Protected Rate of Pay be paid.
In addition to the small business exemption, there are other exemption to the regime including:
- an exclusion on surge workforces - where the employee’s period of performing work will be less than three months; and
- an exclusion where a training arrangement applies to the employee in respect of the work performed for the host (ie. the employee is a trainee).
Dealing with disputes
The Fair Work Commission has been empowered to settle disputes (including arbitration) about:
(a) the precise dollar amount of a Protected Rate of Pay (the precise payrate payable under an enterprise
agreement may not always be clear); and
(b) whether an employee is being, or has been, paid a Protected Rate of Pay.
However, in the first instance, the parties to the dispute must attempt to resolve the dispute at the workplace level between the parties. If discussions at the workplace level do not resolve the dispute, a party to the dispute may apply to the Fair Work Commission to resolve the dispute.
Further, unless there are exceptional circumstances the Fair Work Commission must deal with the dispute by means other than arbitration at first instance (i.e. they must conciliate or mediate prior to arbitrating the dispute).
Significant anti-avoidance provisions apply to prevent businesses from taking steps to avoid obligations under the new Part 2-7A.
Broadly, this means it will be unlawful to:
(a) enter into a scheme to avoid the operation of the new provisions;
(b) vary the engagement of workers (eg. dismissing or hiring them) with the purpose of avoiding the
operation of the new provisions;
(c) vary the engagement of labour hire firms with the purpose of avoiding the operation of the new
provisions; and
(d) engage independent contractors with the purpose of avoiding the operation of the new provisions.
These provisions appear to be directed at ensuring that employees who are meant to be the beneficiaries of the ‘same job, same pay’ entitlement, do not lose their jobs because of the introduction of the new laws.
The Criminalisation of Wage Theft
The Closing Loopholes Legislation criminalises the underpayment of wages (referred to in the Bill as ‘Wage Theft’).
Under the new provisions, an employer commits an offence if:
(a) the employer is required to pay an amount (a “required amount”) to, or on behalf of or for the benefit of
an employee under:
(i) the Act; or
(ii) a fair work or transitional instrument; and
(b) the employer’s conduct results in an intentional failure to pay the required amount to the employee in full
on or before the day when the required amount is due for payment.
Failure to pay superannuation, long service leave, or jury or paid emergency service leave is excluded.
The actual criminal proceedings may only be commenced by the Director of Public Prosecutions or the Australian Federal Police anytime within 6 years after the offence.
The penalty for the new crime on conviction is:
(a) for an individual a term of imprisonment of not more than 10 years or not more than the maximum fine, or
both; and
(b) for a body corporate – by a fine of not more than the maximum fine.
The maximum fine being the greater of 3 times the underpayment amount and for:
(a) an individual – 5,000 penalty units ($1.56m); and
(b) a body corporate – 25,000 penalty units ($7.8m).
Additional Measures
The new regime will include the Minister publishing a Voluntary Small Business Wage Compliance Code (Code).
Where the Fair Work Ombudsman (FWO) is satisfied a small business complied with the Code, but underpaid, the FWO must not refer the small business for criminal prosecution.
The regime also includes an arrangement whereby the FWO can enter into a cooperation agreement with a person reported to the FWO of possibly committing an offence.
Where a cooperation agreement is in force, the FWO is prevented from referring the parties to the DPP or AFP for prosecution.
The FWO must have regard to the following when determining whether to enter into a cooperation agreement with a person:
(a) whether in the FWO’s view the person has made a voluntary, frank and complete disclosure of the conduct,
and the nature and level of detail of the disclosure;
(b) whether in the FWO’s view the person has cooperated with the FWO in relation to the conduct;
(c) the FWO’s assessment of the person’s commitment to continued cooperation in relation to the conduct,
including by way of providing the FWO with comprehensive information to enable the effectiveness of the
person’s actions and approach to remedying the effects of the conduct to be assessed;
(d) the nature and gravity of the conduct;
(e) the circumstances in which the conduct occurred;
(f) the person’s history of compliance with the Act; and
(g) any other matters prescribed by the regulations.
The regulations may prescribe content requirements for cooperation agreements.
The introduction of the crime of wage theft has been anticipated for some time.
Perhaps the most significant aspect of the proposed reform is that the crime only applies to intentional conduct and does not require a particular degree of seriousness or scale.
In short, intentional underpayment is potentially criminal, regardless of quantum.
Inadvertent underpayments (even if reckless or negligent) are not covered by the criminal laws.
New Entry Rights and Training Payments for Workplace Delegates
The Closing Loopholes Legislation contains significant new entitlements for right of entry for union officials and union delegates.
Right of Entry without Notice
Firstly, the Fair Work Commission, if satisfied, will now be able to grant an exemption certificate to unions to allow them to enter an employer’s premises without notice where a union is seeking to enter a site to investigate a suspected contravention involving underpayments of wages or other monetary entitlements of union members.
This will significantly increase the likelihood that unions will exercise right of entry onsite without notice. Currently, entry without notice to investigate a suspected breach is only allowed where notice might result in the destruction, concealment or alteration of relevant evidence.
The new right of entry provisions commence 1 July 2024.
Workplace Delegate’s Rights
The Closing Loopholes Legislation will introduce a new system of Workplace Delegate’s rights.
Firstly, the Act will include the following rights and entitlements for workplace delegates (those who are appointed in accordance with union rules):
An employer of a workplace delegate must not unreasonably fail or refuse to deal with the workplace delegate;
Workplace delegates are entitled to represent members or persons eligible to be members including in disputes with their employer; and
Workplace delegates are entitled to:
(a) reasonably communicate with the union’s members and any other persons eligible to be members;
(b) for the purposes of representing members:
(i) reasonable access to the workplace and workplace facilities; and
(ii) unless the business is a small business – reasonable access to paid time during normal
working hours for purposes of related training.
In determining what is reasonable, regard will be had to the size and nature of enterprise, the resources of employer and workplace delegate and facilities available at the enterprise.
The regime will also apply to ‘employee-like’ workers not just employees.
Modern awards will be updated to include a delegates’ rights term and the FWC has scheduled a ‘test case’ for this which ABLA is engaged in with all modern awards to have a clause inserted into them by 1 July 2024.
From this time, enterprise agreements will require a delegate’s rights term and if this is less beneficial than the modern award term, the modern award term will apply.
None of this requires you to have a union delegate. The laws rather concern circumstances where a union has members in your business and has authorised one of your employees to be a union delegate.
Bargaining changes
The Closing Loopholes Legislation includes a range of technical bargaining changes and one very substantive change.
Substantive change to arbitration
The Act now requires that where the FWC arbitrates a bargaining dispute, if there was a pre-existing enterprise agreement, the FWC decision cannot arrive at an outcome less favourable than the pre-existing enterprise agreement (considered term by term dealing with the same subject matter) for each of the employees covered by the enterprise agreement (and unions).
This change will significantly hamper an employer’s ability to ‘bargain-out’ of its agreements any term that prevents or hinders the efficient operation of their business unless the employer can secure these through cultural acceptance or is able to buyout the terms.
This is because in any bargaining dispute, unions will understand that if an employer claim is rejected and no agreement reached , any term arbitrated by the FWC cannot be less favourable to employees than the pre-existing term - thereby reducing the incentive for unions to concede changes without substantial compensation (or achieving them culturally). The same rules will also likely increase union appetite to proceed to arbitration on their own claims that might not have been agreed to by employers (especially in highly transactional negotiations).
We anticipate that this amendment will have a significant influence over bargaining and is likely to see:
- an increased focus on workplace culture as the driver of bargaining behaviour – not the other way around;
- more intense consideration whether to start bargaining in the first place;
- industrially weak unions who control an enterprise agreement vote outcome holding out in making bargaining concessions for longer than previously experienced, with an eye to arbitrating any disputes that remains unresolved after a protracted negotiation; and
- employers starting to explore more innovative ways of seeking to procure changes to existing agreements. This might include trying to change terms with holistic packages that present ‘better off overall’, limiting wage increases unless other terms are bought out and seeking to grandparent existing entitlements for current employees in order to make the workforce more productive over time.
Technical changes
There are bargaining changes which cover off issues arising from the recent introduction of multi-employer bargaining including amendments to allow parties to voluntarily replace a supported bargaining or a single interest agreement with a single enterprise agreement at any time.
Where this happens, the BOOT will be conducted against the existing agreement and not the modern award.
Changes will also be made enabling multiple franchisees to access the traditional single enterprise bargaining stream.
The FWC can now issue model terms for enterprise agreements with respect to flexibility, consultation and disputes. Currently, these model terms are included in the regulations, drafted by the Minister.
The Small Business Redundancy FEG changes
Finally, measures have been introduced to ensure that employees do not miss out on redundancy payments merely because their employer became a small business as a result of a bankruptcy/insolvency.
This will support equitable outcomes for claimants under the Fair Entitlements Guarantee.
What’s Next
As always, ABLA’s team of specialists are available to help with these matters. Feel free to reach out at info@ablawyers.com.au if you have any queries.
Related IR reforms resources