Industrious Conversations: Closing the loopholes on same job, same pay

Trent Sebbens:

Hello and welcome to Ashurst Legal Outlook and our first podcast in a brand new series bringing you insights into Industrial Relations developments in Australia from our leading Employment team at Ashurst. My name is Trent Sebbens and I'm a Partner in the Employment team in Sydney. Today we'll be focusing on one of the new aspects of the Fair Work Act brought in by the Closing Loopholes reforms; That is the new regime on Regulated Labour Hire Arrangement Orders. I'm joined today to discuss that topic by Kathy Srdanovic, also a Partner in the Employment team in Sydney.

Hi Kathy, can you tell us what exactly is a Regulated Labour Hire Arrangement Order?

Kathy Srdanovic:

Hi Trent, it's good to be here to discuss this important topic. So, Regulated Labour Hire Arrangement Order, we've all got a new acronym to learn; RLHAO. This really comes off the back of what many of us would've been referring to as the Same Job, Same Pay reforms that we heard being discussed in the reforms that we also know as the Closing Loopholes reforms. So essentially the RLHAO, it's a mechanism where an employee or a union or the regulated host – another term we should get familiar with – or an employee of the regulated host, can apply to the Commission for an order. The effect of this order, if it's made, is that the labour hire worker would get paid no less than what we know or will come to know as a Protected Rate of Pay - the PROP - another acronym. That's really that the labour hire worker would be paid that PROP in connection with the work they perform for the regulated host. The effect of that is that they effectively get paid the same as if they were actually employed by that employer, subject to working through some issues around how that protected rate of pay will work.

A few points to look at, at the outset about these kinds of orders, is that the order must be made if certain conditions are satisfied. So, to start with you have to think about it as having three parties. You've got a regulated host. You've got a worker, and then you've got the worker's employer. That employer is supplying its employees, the workers, to perform work for the regulated host. Then you'll have a covered employment instrument and let's say that's an enterprise agreement. One of the things that the Commission has to be satisfied of is that that enterprise agreement would apply to the employees if they were directly employed by the regulated host to perform that work. That gets you back to this idea of same job, same pay.

Trent Sebbens:

So Kathy, obviously in the lead up to this legislation coming in there was a lot of media coverage and interest from unions, the ACTU, employers in particular industries. What are we starting to see in relation to the applications and how they're coming before the Commission and progressing?

Kathy Srdanovic:

Trent, it won't be a surprise given the noise that we heard in the lead up to these reforms being actually introduced and being the subject of a lot of debate amongst industry groups, employer bodies, etc that the applications we're seeing are mainly in mining and aviation so far. Any application that's been made, the orders can't actually commence until the 1st of November, but that hasn't stopped a whole raft of applications being made, particularly in those industries. We're starting to see those applications progress now through the Fair Work Commission.

Trent Sebbens:

In relation to applications, are there any exceptions to the making of an order?

Kathy Srdanovic:

There are two main exceptions. We've talked through when the Commission must make an order. So if those criteria are met, an order must be made, but then there are two instances where the Commission must not make an order. The first one really goes to this idea of the supply of the worker; is it for the provision of a service or is it for the supply of labour? If it's for the provision of a service, then the Commission must not make the order; it's got to get to a degree of satisfaction around that. There's some guidance that we see in the legislation around the factors that go to whether it's for the provision of a service or for the supply of labour.

The second one is that the Commission must not make an order if it's satisfied that it's not fair and reasonable in the circumstances to do so. Then, again, the Act gives you some guidance around the matters that are to be considered that go to that fair and reasonable factor. There are a whole range of matters. There are things like the pay arrangements that apply; the history of the industrial arrangements; the relationship between the host and the employer including whether they are related bodies corporate; and the terms and the nature of the arrangement.

The Commission doesn't actually get to consider those factors unless the parties make submissions on them. They're really going to be the two areas where we'll see parties who are opposing these applications contest them.

Trent, I'd be interested in what observations you've got about how those applications are actually proceeding before the Fair Work Commission.

Trent Sebbens:

We've seen one go the whole distance, Kathy, that's the one in the black coal mining industry concerning the Batchfire Mine, otherwise known as Callide; an application by the Mining and Energy Union. It ended up being an application that was consented to, so not opposed by either the labour hire provider in that case - that was WorkPac - or the host - that's Callide/Batchfire.

In relation to the other applications so far that we're seeing, they're at various stages of programming. There are those that either haven't been actively opposed to this point or we're seeing them being consented to, or in a rare instance being withdrawn because the matter was resolved effectively between the parties and there was no utility in the application anymore. We are seeing, at least in our experience, that they're being case managed primarily by the President of the Commission and he's then allocating what are turning out to be test cases to Full Benches of the Commission to then program those matters for filing of evidence and submissions and, ultimately, for hearing. A feature of this Act is that these Regulated Labour Hire Arrangement Orders, if they're made, won't be able to come into force until 1 November 2024. Accordingly, the Batchfire/Callide one that was made by consent will start on that date.

Right now, we wouldn't expect to see hearings concluded in contested matters until later in the year or perhaps the start of next year. What we can glean so far from the one decided case, Callide/Batchfire, is a bit more narration around the provisions in the Act. In that particular case, WorkPac was the labour hire provider. In order to be satisfied that it ought to make the order, there was some evidence filed in the Commission which formed the basis of its reasoning, but it really was just a narration of some of the provisions of the Act and how they applied to those particular factual circumstances. We saw a bit of an explanation in relation to the services exception to talk about what we might expect to see in a test case sense in the contested matters.

In that particular case, the Full Bench considered in relation to the services exception that WorkPac, it was clear on the evidence, had no involvement in the performance of work beyond the supply of the workers to the mine. Batchfire gave all instructions to WorkPac employees about the performance of their work, arranged their rosters and also undertook quality control of that work. The WorkPac employees used the mine's own plant and equipment and WorkPac was not subject to any industry or professional standards. The work that was being done by the WorkPac employees was effectively work of mining operators; that is, obviously skilled in that particular industry but without need for a particular industry or professional standard to be met. The production work performed was not highly specialised.

I think we can expect to see, as we go along, that those exceptions will be tested a bit more. We didn't see anything said about the other exception on it not being fair and reasonable to make the orders. That is a ground upon which an order might not be made. I expect that we're going to see a bit more on that front in the future. For now, there's not a great deal of guidance. We're all learning new acronyms, new exceptions and how you apply these laws. There's still a lot more to come.

Kathy Srdanovic:

Just building off what you said about the process and how the matters are going before the Fair Work Commission, I think what we can also see is where the applications are not being contested there can be quite a simpler path. It might not take much time to put together an application, but when it goes to the heart of an employer's operating model it can require some time for someone who's named as a respondent to actually consider the application and whether or not they will contest it. We have seen, on occasion, the parties come before President Hatcher and ask for some additional time before the application comes up for directions. The applications which aren't being opposed or might be agreed with could proceed by way of a statement of agreed facts where you go through quite a short document and agree facts which go to the heart of the matters that the Commission must be satisfied of. That could, for example, also include that the provision of the worker is not for the provision of a service but instead is for the supply of labour. By conceding that, that's a pretty easy path through to the order being made which may not even result in detailed decisions or detailed reasons being given.
Then, for the applications which are being contested, that fair and reasonable criteria will be something that will need to be considered by the Commission; there will be test cases on that without a doubt. Interestingly, the Commission only has to consider those factors if submissions are made about them. If you're not contesting an application, you need not really deal or grapple with all of those fair and reasonable criteria. It's about going to the heart of what the Commission must be satisfied of and that's it.

Trent Sebbens:

We've already alluded to sort of areas of test cases and those exceptions, Kathy, and how they might get triggered. Do you think there are likely to be other test cases that we'll see, either disputes about orders once they're made or in the lead up to an order being made? What do you see on the horizon?

Kathy Srdanovic:

I think there are a few points here. First, the one that we'll see with the BHP Coal case is whether the supply of the worker is for the provision of service and not for the supply of labour. When you look at the legislation and how it's framed, it's binary, it's one or the other. The question I think that the Commission will be dealing with is the extent to which something more must be provided beyond the supply of a worker in order for it to be considered or characterised as a provision of a service. What is going to be that something more? The nature of the contracting arrangements between the parties would be key to that, but also all of the factors that you've referred to earlier, Trent, in terms of the Full Bench decision.

Going back to that fair and reasonable test, the factors that are listed in section 306(e)(8) refer to things like the pay arrangements that are in place and the history of industrial arrangements. It goes to what's actually been the history of bargaining relating to a party.

It's interesting in this context where you might have unions which bargained for enterprise agreements that actually cover the workers that are being supplied to the regulated host. How much weight will be put on things like that; the relationship between the various parties, the terms and the nature of the arrangement? We don't really know yet, because there is no guidance, what weight each of those factors will be given. The policy rationale behind all of this is obviously that the labour hire workers be paid the same, but what will be the outcome when that does something bigger for the ultimate business model and with significant adverse impacts beyond just cost impact? Will that go to fair and reasonable criteria? Will that be any other matter that the Commission considers relevant?

If we assume that the orders get made, we come back to the PROP. How do you actually go about determining what's in the protected rate of pay? There's a mechanism there to have an arbitrated outcome on that. We might see some developments in that area, but hopefully also some guidance from the Fair Work Commission which we're expecting to be published on or before 1 November 2024. There's also a mechanism whereby if an order is made, there is an ability to apply for an alternative protected rate of pay. What kind of considerations will the Commission weigh in there to determine that the host's employment instrument might not be the best instrument and when we need to look at an alternative protected rate of pay is.

There are lots of test cases on the horizon and I think we'll see a lot of Full Bench activity. Trent, thinking about the applications and when they do actually come in, can you see a way to resolve these applications short of an order being made? Are there any industrial solutions through any of this?

Trent Sebbens:

I think it's pretty critical. Kathy, no doubt if you're in the industries that we've been talking about - in the mining industry, transport or aviation although one can imagine others in which labour hire workers are typically engaged - hosts ought to be turning their minds to whether or not an application is likely to come the way of one of their labour hire providers. Should they be planning for that now? That is, reviewing what their contractual arrangements are; how those contractual arrangements apply; do they provide change of law provisions that would impact if such an order was made? Does that get passed through to the host automatically under the terms of the contract? Where are those applications likely to come from and have the greatest impact? But really, the question is what is their best labour engagement model now in light of this new regime and if such an order were to be made?

Hosts will be turning their minds to whether or not there are still flexibilities in having labour hire arrangements. That includes the flexibility of being able to source labour from an alternate provider so that you can flex up and down in relation to workforce planning based upon demand or other factors, and having that labour ultimately managed and employed by that third party. It may require understanding that if you are to continue that labour model - that is, through provision of labour hire - it may come at some cost premium rather than at a cost efficiency. However, there still may be benefits in continuing the arrangement.

Alternatively, it may be after review that a host considers there might be alternate ways of doing that work. It could be that it be insourced or it might want to review whether or not it ought to take a broader view about how it does particular work. For example, whether it should be bundling that work together and seeking for it to be provided as a service by a third party rather than just through the provision of labour?

These are decisions that hosts will have to make and there is some work that they can be doing now and ways in which those issues can be resolved. What we are typically seeing is that when an application is made that is the very thinking that goes on at the time, but also that there are practical discussions which are then had with applicants - that is, unions - about how the arrangements would apply if the orders were made, and that includes the elements of the protected rate of pay, the PROP. In the Batchfire case that we mentioned (Ashurst acted for the host in that case), the parties all turned their minds to what the protected rate of pay should be and approached the Commission to seek an order to say what the elements of that protected rate of pay would include. That is, by reference to clauses and relevant allowances within the host enterprise agreement.

The Commission, in that instance, declined to make the order and said that after an order that the protected rate needs to be paid is made, it's for the parties to determine what that protected rate of pay will be. When we see those on the ground solutions being reached, there is the potential for some different views to be formed that might result in disputes about what the protected rate of pay should be. There are mechanisms within the Act as well to deal with those circumstances so the parties aren't ultimately left wondering. If arbitration is then the outcome of that dispute, the decision at arbitration would be what the protected rate of pay is in that circumstance.

Kathy Srdanovic:

I think that it's important with provisions that do seem so uncertain in their application in some respects to remember the obligation to pay the PROP, the protected rate of pay, is a civil remedy provision. It becomes your new payment obligation. Taking the time to work through what the outcome would be of any application and any orders if made becomes very significant.

Trent Sebbens:

It's still pretty early days, Kathy, in relation to this new regulated labour hire arrangement order regime and it's certainly an area of interest to both hosts and labour hire providers, as well as more generally to service providers. Hopefully we see some decisions coming out of those contested applications so that we can all get some more guidance to help us in relation to considering labour engagement models. Thanks very much for joining me today Kathy.

Kathy Srdanovic:

Thanks very much Trent. I'm definitely keen to see what guidance comes out of the Commission as well in terms of the material we're expecting before 1 November 2024. While it's early days, there's certainly been a lot of activity so far. Thanks for that discussion.

Trent Sebbens:

Thank you for listening. To hear more Ashurst podcasts and to ensure you don't miss any future episodes in the series, subscribe now on Apple Podcasts, Spotify, or your favourite podcast platform. Also, please do reach out to our Employment team if you'd like to discuss this topic more. It's one that we are following closely and have a keen interest in.
We hope you'll join us next time as we continue to explore key developments in industrial relations in Australia to gain insights from other members of our leading Employment team here at Ashurst. Until then, thank you for listening and goodbye for now.