Closing Loopholes Act – regulated labour hire arrangements jurisdiction

On 14 December 2023, the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Closing Loopholes Act) received Royal Assent.

This Alert is the first of a series, which reviews and summarises the changes beginning with that concerning regulated labour hire arrangements.

From when and what are the changes?

From 15 December 2023, the Fair Work Commission (Commission) has been empowered to make orders relating to labour hire arrangements, through the making of regulated labour hire arrangement orders on application. These orders do not apply to host employers that are small business employers.

The earliest date on which these orders can come into effect is 1 November 2024.

If made, a regulated labour hire arrangement order:

• Could require a direct employer to pay regulated employees in accordance with the host employer’s employment instrument (e.g.  enterprise agreement);
• Would ensure that regulated employees are paid no less than the ‘protected rate of pay’ whilst the order is in force, unless an exception applies;
• May make provision for an ‘alternative protected rate of pay order’ to pay regulated employees a minimum rate based on an ‘alternative employment instrument’;
• Can be extended to include ‘additional employers’ and their regulated employees, either on application or on the Commission’s own initiative.

The Commission’s jurisdiction is also expanded to enable it to resolve disputes about the regulated labour hire arrangement jurisdiction, including by way of arbitration and the making of an ‘arbitrated protected rate of pay order’.  A dispute may arise, for example, about what the protected rate of pay for a regulated labour hire employee actually is, or whether the employee is being paid less than the protected rate of pay under the terms of any order.

There may be exceptions to a regulated labour hire arrangement  order being made, or having operation, for example:

• Where it is not fair and reasonable in all of the circumstances to do so.  The Commission will have regard to submissions in this respect, for example, whether the host employment instrument is of limited application, the history of industrial arrangements between the employer and regulated host, whether they are related bodies corporate or in a common enterprise;
• The arrangements are for a service, rather than the supply of labour, to a host employer.  This includes the Commission’s consideration of the extent to which ‘in practice’ the employer ‘directs, supervises or controls’ the regulated employees when they perform the work including by managing rosters, assigning tasks or reviewing the quality of the work, the extent to which the regulated employees will use systems, plant or structures of the employer to perform the work, and the extent to which the work is of a ‘specialist’ or ‘expert’ nature;
• Employees who are engaged by the direct employer as trainees under State or Territory training arrangements;
• ‘Short term employment arrangements’, usually of a lesser duration than 3 months.

Related bodies corporate can be the subject of a regulated labour hire arrangement order – there is no exception for related bodies corporate.

Who can make a regulated labour hire arrangement order application?

Employees – Unions – and host employers.

Impact on host employers

If you are a host employer, you should take steps to understand your obligations as a host.

Host employers:

• Must respond to requests from labour hire employers for information about rates of pay, where information is needed to calculate the correct rate of pay, as soon as reasonably practicable;
• Must apply to the Commission to vary labour hire arrangement orders if there is a change in circumstance, for example a change in labour hire provider or change in the enterprise agreement (or host employment instrument) for example, where the enterprise agreement is replaced, as soon as practicable
• Must notify those participating in tender processes, at the start of the tender process, of any regulated labour hire arrangement order in place and the requirement to comply with the terms of such orders
• Provide information to calculate termination payments when a labour hire employee covered by a regulated labour hire arrangement  order ends.

Impact on the direct employers

The direct employer (or supplier of the employees to the host employer) must pay the ‘protected rate of pay’ to their employees, regardless of whether they are full time, part time or casually employed.

The protected rate of pay is the full rate of pay including pay rates, incentive based payments and bonuses, loadings, monetary allowances, overtime or penalty rates and other separately identified amounts, that would have been paid under the host employment instrument (in most cases this will be the enterprise agreement) to the regulated employees if they were directly employed by the host employer.

Where the host employment instrument does not identify or make provision for work to be performed by casual employees, the Closing Loopholes Act provides for the determination of a casual rate of pay by applying a base rate and adding a casual loading of 25%.

Anti-avoidance provisions and penalties for breach

Regulated host employers and direct employers who do not comply with the changes will be subject to civil penalties in the event of a breach.

Further, behaviours intended for the sole or dominant purpose of avoiding the operation of the terms of a  regulated labour hire arrangement order are subject to anti-avoidance provisions and penalties. This might include avoidance by the engagement of employees on short term arrangements, the engagement of independent contractors or a scheme to enter into other labour hire agreements to avoid payment of the protected rate of pay.

Guidelines

The Commission will consult about, and ultimately publish, guidelines in relation to the operation of this new jurisdiction.  New forms for the applications will be published in due course and made available through the Commission’s website.