Navigating changes to employment and industrial relations in Australia: the increasing involvement of the Fair Work Commission in your business

In last year’s issue of Emerging Issues we highlighted changes to the Fair Work Act 2009 (Cth) (FW Act) arising from the Secure Jobs, Better Pay reforms. These changes fundamentally altered enterprise bargaining and strengthened the Fair Work Commission’s (FWC) role in setting employee entitlements in workplaces across Australia.

Since then, the Federal Government has made further significant amendments to the FW Act. Taken as a whole, the package of changes fundamentally alters the regulation of the labour market in Australia including by:

• inserting the FWC into the centre of every employment relationship in a way that we have not seen since the 1980s; and
• forcing business to directly engage permanent labour rather than using casual labour or contracting out services to contractors or labour hire firms.

What has changed?

Over the past 18 months, the Federal Government has passed various pieces of legislation amending the FW Act, including most recently the two tranches of ‘Closing Loopholes’ reforms.

Two themes emerge from the changes:

• First, the FWC is likely to become an increasingly central part of the relationship between businesses and their workforce, whether that workforce be direct employees or contracted labour. Not only has the FWC been given a range of new powers to arbitrate and determine disputes relating to matters such as sexual harassment, fixed term contracts, flexible work requests, extensions of ‘zombie agreements’, bargaining, industrial action, labour hire, conversion of casual employees to permanent employees, independent contractor drivers and gig workers, the FWC has also been given power to create principles, guidelines and model terms which will effectively govern the way important aspects of the FW Act will apply.
• Secondly, in time, it is likely that the changes will force business to place a larger focus on directly engaging permanent labour rather than using casual labour or contracting out services to contractors or labour hire firms. The changes forcing this move include the introduction of regulated labour hire arrangement orders or ‘Same Job, Same Pay orders’ (RLHAOs), restrictions on the use of fixed-term contracts and changes to the meaning of who is a casual worker and who is a contractor.

We expect that the resources and energy sectors in particular will feel the effects of these reforms. There are two key reasons for this:

• A number of the changes were introduced specifically to limit the use of certain types of labour in these sectors. For example, the ‘Same Job, Same Pay’ reforms are primarily targeted at stamping out the use of labour hire in the resources sector.
• The unions that represent employees in the resources and energy sectors have historically been active in pursuing disputes and contesting bargaining processes before the FWC. The new reforms provide a stronger platform for unions and employees to involve the FWC in workplace disputes and bargaining, and at times significant strategic benefit in doing so.

Regulated labour hire arrangement orders

One of the most controversial and significant changes to the FW Act is the introduction of the ‘Same Job, Same Pay’ provisions. These reforms seek to reduce the use of third-party workforce arrangements (labour hire) in the resources sector. After significant campaigning by industry stakeholders for and against these reforms, Parliament passed legislation in December 2023 empowering the FWC to make RLHAOs.

A RLHAO is an order made by the FWC that requires an employer that supplies workers to perform work for a host to pay its workers at least the full rate of pay (including minimum wage rates, loadings, overtime or penalty rates, loadings and other entitlements) payable under the regulated host’s enterprise agreement (the ‘protected rate of pay’ (PROP)).

Employees, unions and host employers can apply to the FWC for RLHAOs now, although a RLHAO cannot come into effect before 1 November 2024.

If the FWC makes an RLHAO:

• the labour hire employer must pay its workers at minimum the PROP the workers would receive if they were employed by the host and paid under the host’s enterprise agreement. The employer can request information from the regulated host to determine the PROP; and
• the regulated host must provide the employer with the information it requires to apply the PROP or alternatively, it could choose to effectively administer payroll for the regulated employees by calculating the PROP and advising the employer what to pay employees each pay cycle.

While these changes have been touted as ensuring workers who perform the same job receive the same pay, the regulated host does not actually have to employ employees to perform the kind of work for an RLHAO to be made. Also, if the PROP is less than an employee’s full rate of pay with their employer, the employee will be paid the higher amount that they are being paid by their employer.

Changes that were made to these reforms shortly prior to being passed mean that RLHAOs continue to apply even if a regulated host bargains a new enterprise agreement.

Also, the legislation as originally proposed allowed RLHAOs to be made in relation to the provision of services (instead of labour). However, this was removed prior to the legislation being passed.

The impact that RLHAOs will have on the resources and energy sector is likely to be significant and any organisation that relies on, or supplies, labour should assess the impact an RLHAO would have on its business. The Mining and Energy Union (formerly the Mining Division of the CFMMEU) has publicly declared its intent to make use of these changes to ‘deliver for workers across the mining and energy industries.’ The Mining and Energy Union has already lodged two applications for RLHAO. The first application seeks an RLHAO to cover employees of WorkPac who perform work at the Callide Mine and the second seeks to cover employees of Skilled Workforce Soloutions who perform work at Thiess’ Mount Pleasant Operation. We expect to see further applications for RLHAOs over the coming months in the lead up to 1 November 2024.

Enterprise bargaining

Our previous issue of Emerging Issues outlined key changes to the bargaining provisions under the FW Act, including the introduction of multi-employer bargaining. These changes provided the FWC with increased power to decide applications for multi-employer bargaining and intractable bargaining declarations, as well as making it harder to satisfy the FWC that the parties have genuinely agreed to an enterprise agreement.

We are seeing the FWC exercise the powers it gained under the previous tranches of amendments to the FW Act. The further significant changes passed over recent months have further increased the workplace matters which the FWC will be able to be involved in.

Multi-employer bargaining

Despite unions welcoming the introduction of multi-employer bargaining in June 2023 and the Australian Council of Trade Unions identifying the renewable energy sector as a particular target for multi-employer bargaining, there was limited activity in relation to multi-employer bargaining in the back- half of 2023. We do, however, expect an increase in union appetite to pursue multi-employer bargaining in 2024.

Hunter Valley mining operations have become the target of a contested multi-employer bargaining test case with the Collieries Staff and Officials Association applying for a determination to allow it to bargain with Peabody Energy, Glencore, Whitehaven, Delta Coal and Wollongong Resources for a multi-employer deal covering supervisors at five underground coal mines across NSW.

This case will be closely watched and may mark the first of many multi-employer bargaining applications in the resources and energy sectors.

Intractable bargaining declarations – Nothing to lose and everything to gain for employees and unions

As of June last year, the Commission has the power to resolve ‘intractable bargaining disputes’ by making a ‘determination’ (essentially, an enterprise agreement written by the FWC following an arbitration between the negotiating parties). Since the introduction of these provisions, both employers and unions have called on the FWC to intervene in bargaining and determine the terms of the enterprise agreement being bargained.

Of concern for many employers will be the change made by the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act (Closing Loopholes No. 2) to the provisions relating to the resolution of intractable bargaining disputes. This change will completely shift the dynamic of bargaining, hampering employers’ ability to bargain changes to terms in their existing agreements and giving union and employee bargaining parties a strategic advantage.

Closing Loopholes No. 2 includes a new term which says that every clause of the determination must be not less favourable than the existing agreement clause. Compared with the requirement for an enterprise agreement to be better than the relevant Award(s) on an overall basis, this change will require an intractable bargaining determination to be no less favourable than the existing enterprise agreement on a line by line basis.

Traditionally, in such arbitrated bargaining outcomes, the parties approach the FWC with some caution because the FWC’s ultimate decision is uncertain and is out of their hands. With this change, the employee/union bargaining parties will have the benefit of knowing that they cannot lose the benefit of any condition in their current agreements. This is likely to encourage unions to push bargaining to the FWC under the intractable bargaining pathway, particularly if an employer has expressed a desire to remove or reduce an existing benefit. The union/ employees will have nothing to lose by pushing the bargaining to the FWC to resolve.

Genuine agreement

Unions in the resources sector have a history of actively contesting the approval of an enterprise agreement on the basis that the agreement was not genuinely agreed to by workers. Recent changes now require the FWC to consider unions’ views when deciding whether to approve an enterprise agreement.

The FWC’s Statement of Principles on Genuine Agreement came into effect in June 2023 and introduced a new and untested set of considerations for whether a proposed enterprise agreement has been genuinely agreed.

For example, in deciding whether to approve an enterprise agreement, the Statement requires the FWC to consider factors such as a union’s support (or lack of support) for an enterprise agreement and the union’s views about whether the agreement is genuinely agreed. These considerations give unions more power than ever before over the approval process before the FWC and is likely to increase the pressure on employers to reach agreement with unions on the terms of an enterprise agreement before putting it to the workforce for a vote and applying to the FWC for approval.

Redefining casual employment

Closing Loopholes No. 2 introduces a new definition of casual employee in the FW Act, removing the certainty provided by the High Court of Australia in the decision of WorkPac Pty Ltd v Rossato [2021] HCA 23 (Rossato) and by the introduction of an express definition of ‘casual employee’ inserted into the FW Act in March 2021.

Closing Loopholes No. 2 introduces a new definition of ‘casual employee’ which provides that an employee will be a casual employee if:

• there is an absence of a firm advance commitment to continuing and indefinite work (which is determined by reference to a list of indicia, including the real substance, practical reality and true nature of the employment relationship with the contract of employment being only one factor); and
• the employee would be entitled to a casual loading or specific casual rate of pay under the terms of a fair work instrument or contract of employment.

This new definition of casual employment returns employers to the position of uncertainty which existed prior to the introduction of the definition of casual employment in March 2021 and the decision of the High Court of Australia in Rossato. Businesses that employ casual employees should undertake an audit of their arrangements with casual workers to understand what risk this change poses to their business.

In addition to this new definition, Closing Loopholes No. 2 replaces the current casual conversion provisions in the FW Act with provisions that allow employees who believe that they no longer meet the definition of ‘casual employee’ to request to convert to permanent employment if they have been employed for six months (or 12 months for small business employers). An employer may only refuse on the basis that the employee still meets the definition of a casual employee or because of fair and reasonable operational grounds.

In another example of the FWC’s increasing ability to become involved in workplace matters, new provisions give the FWC the power to deal with and decide disputes about requests to become a permanent employee.

Contractors vs. employees

Historically, there has been significant litigation about whether a person is an employee or a contractor, and therefore whether they are entitled to be paid employment entitlements. In 2022, the High Court decisions of CFMMEU v Personnel Contracting Pty Ltd 24 [2022] HCA 1 (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek [2022] 25 HCA 2 (Jamsek) provided much needed clarity, finding that the nature of the engagement was determined by reference to the contractual terms on which the person was engaged.

Closing Loopholes No. 2 inserts a definition of ‘employee’ and ‘employer ’ which provides that whether or not someone is an employee or contractor will be assessed by ascertaining the real substance, practical reality and true nature of the relationship. This means that, although the contract between the parties may unequivocally make it clear that the relationship is a contracting relationship, the Court will be required to consider the totality of the relationship, not just the terms of the contract governing the relationship. If the way the contract operates in practice suggests employment, the terms of the contract may be disregarded. The new provisions explicitly state that they were enacted in direct response to the Personnel Contracting and Jamsek decisions.

These changes create real uncertainty for organisations that engage individuals as independent contractors or consultants, whether directly or through a corporate entity or trust. While the terms of contracts governing these arrangements are important, organisations should review their contracting arrangements to determine whether there is a risk that individuals they have engaged as contractors are in fact employees under the new definition and entitled to employment entitlements.

Other

There have been a range of other significant changes to the FW Act, including the introduction of  a right for employees to disconnect, union delegate rights, wage theft provisions and regulated worker provisions for workers in the road transport industry and digital platform workers.

Take homes

• Audit your use of casual labour and contractors to identify how the changes will impact your organisation.
• Educate managers and develop processes to deal with changes relating to employees’ right to request casual conversion, right to disconnect and delegates’ rights.
• Assess whether the introduction of RLHAOs pose a risk to your organisation, whether directly or indirectly.
• Ensure your labour hire contracts include appropriate terms about what will occur when an RLHAO is made.
• If bargaining for a proposed enterprise agreement, ensure that management and the bargaining team understand the new bargaining laws and principles. This will be critical to successfully bargaining and obtaining approval of a new enterprise agreement.

This is an article from our 2024 Edition of Emerging Issues for the Australian Energy and Resources Industry. To read more from this publication, click here.