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91Ƭ

IR Reforms - Pay and Unions

IR Reforms - Pay and Unions

Published: 04 Sep 2023

IR Reforms - Pay and Unions
Written by
Nigel Ward
Nigel Ward
CEO and Director
Caitlin Vincent
Caitlin Vincent
Associate Director

IR Reforms - Pay and Unions

Published: 04 Sep 2023

Overview 

The Federal Government has introduced into Parliament a third tranche of landmark IR reforms in the form of the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Closing Loopholes Bill). 

91Ƭ has published three Reform updates on the Closing Loopholes Bill. 

This is the second: ‘Pay and Union Reform’.  

This update will deal with the following changes to the Fair Work Act 2009 (Cth) (Act) introduced by the Closing Loopholes Bill: 

  • 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 new powers of the Fair Work Commission to issue model terms for enterprise agreements and amendments to allow parties to voluntarily replace a supported bargaining or a single interest agreement with a single enterprise agreement at any time. 
  • 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 Bill 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 to pay the applicable rate 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 employees provided to the host employer to be paid in accordance with the host employer’s enterprise agreement, even if they are not direct employees of the host employer or 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 and that host has an enterprise agreement covering the work of the labour hire employees (most likely with the host employer’s employees working alongside the labour hire employees). 

By way of high-level example: 

Employer A employs Employee who is supplied to perform work for Corporation B.  

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 Employer A pays the Employee in accordance with the enterprise agreement of Corporation B

Host businesses will be required to take reasonable steps to facilitate compliance with the new regime (likely by providing information about their enterprise agreement classifications and pay rates). 

Significantly: 

  1. ‘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. This means that employers do not need to fear that the passing of the Closing Loopholes Bill will mean that the pay of their employees will change overnight. 
  2. Regulated Labour Hire Arrangement Orders cannot be made where the host employer is a small business (fewer than 15). 
  3. ‘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, 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 and the Fair Work Commission deems it fair and reasonable to do so. 

Notwithstanding the Government’s suggestion that these laws are intended to be ‘tightly targeted’ to labour hire, importantly, the reforms do not appear to exclude the possibility that a contract wholly or principally performed for the provision of services rather than the supply of labour could be subject to a ‘Regulated Labour Hire Arrangement Order’. 

This means it appears possible under the reforms that, even in an outsourcing scenario, a ‘Regulated Labour Hire Arrangement Order’ might be made requiring an employer undertaking the outsourced work to pay in accordance with an enterprise agreement of the outsourcing employer. 

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.  

Where it is ‘fair and reasonable’, the Fair Work Commission will now have the ability to order that Employer A pays the Employee in accordance with the enterprise agreement of Corporation B

Consideration of the tests above suggests that genuine contracted services will have better prospects for defending against a Regulated Labour Hire Arrangement Order, unless the purpose is simply to attract cheaper labour. 

The Regulated Labour Hire Arrangement Order regime comes into force from 1 November 2024, although applications can be made from the day the legislation is passed. 

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 Closing Loopholes Bill allows the Fair Work Commission to 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 3 months; and 

an exclusion where a training arrangement applies to the employee in respect of the work performed for the host (i.e.  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 have been included in the Closing Loopholes which apply retrospectively. This means penalties may apply in relation to conduct engaged in before the Bill commences. This is intended to prevent businesses from taking steps to avoid obligations under new Part 2-7A. 

Broadly, this means (should the Bill be passed) it will be unlawful to: 

      (a) enter into a scheme to avoid the operation of the new provisions; 

      (b) vary the engagement of workers (e.g., 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 Bill 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.   

FWO must have regard to the following when determining whether to enter into a cooperation agreement with a person:  

(a) whether in the Fair Work Ombudsman’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 Fair Work Ombudsman’s view the person has cooperated with the Fair Work Ombudsman in relation to the conduct; 

(c) the Fair Work Ombudsman’s assessment of the person’s commitment to continued cooperation in relation to the conduct, including by way of providing the Fair Work Ombudsman 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. This is a pleasing development and comes after sustained feedback from employer groups including the Australian Chamber and Business NSW/ABI, pushing for the exclusion of inadvertent underpayments from the criminal penalty regime. 

New Entry Rights and Training Payments for Workplace Delegates 

The Closing Loopholes Bill 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 Bill will introduce a new system of Workplace Delegate’s rights. 

Firstly, the Act will now 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. 

The entitlement to reasonable paid training for all employers other than small employers is particularly notable. 

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, enterprise agreements will require a delegate’s rights term, and this will form a part of the BOOT for enterprise agreements going forward. 

Bargaining changes  

The Closing Loopholes Bill includes a range of technical bargaining 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 Bill also introduces new powers for the FWC to 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, 91Ƭ’s team of experts 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

The content of this article is general in nature, and is intended to provide commentary only. It does not constitute advice, and should not be relied upon as legal advice. Targeted formal legal advice should be obtained prior to any action being taken in relation to a matter arising in response to the content of this article.

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