Closing Loopholes Bill: big changes for labour hire

In brief: The Albanese Labour Government's Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Bill) is set to introduce significant changes to the Australian industrial relations landscape. In particular, the Bill focuses on the Australian labour hire industry and closing its purported 'loophole'.

In recent times, the introduction of state-based labour hire legislation has sought to regulate and curtail the influence of labour hire providers in the Australian market.
 
The Bill that purports to 'close the labour hire loophole', in conjunction with the Albanese Labour Government's 'Same Job, Same Pay' reforms will be the biggest reforms to the labour hire industry in Australian history.
 
In this article, we examine the proposed regulated labour hire arrangement orders and how these changes will affect people working in the labour hire industry.

What has changed: Regulated Labour Hire Arrangement Orders (RLHAOs)

One of the Bill's key proposed changes will be the empowering of the Fair Work Commission (FWC), whether on application of an individual or Union, to make RHLAOs.
 
An RLHAO is an order made by the FWC requiring an employer of labour hire workers to pay the labour hire workers a 'protected rate of pay'

When will a proposed RHLAO be made by the FWC?

Under the proposed changes, the FWC will be required to make a RLHAO where:

1.  a labour hire arrangement is in place;

2. the host employer is not a small business employer; and

3. the supplied employee(s) would be covered by an industrial instrument if they were direct employees of the host.

Such an order has the effect of compelling the employer of the labour hire employees to pay them a 'protected rate of pay'.

Where a RLHAO is made, the employer of the labour hire employees will be compelled to pay the employees the full rate of pay that they would be entitled to under the relevant industrial instrument. The host of the labour hire employees would be required to comply with requests from the employer to provide information so that it can pay the employees the correct rate of pay.

When will a proposed RHLAO be rejected by the FWC?

There are limited exceptions to when the FWC may make RHLAOs. Firstly, the FWC will be unable to make an RHLAO if it was not "fair and reasonable" to do so. In determining whether making a RHLAO is "fair and reasonable" the FWC would consider:

1. the pay arrangements of employees of the host employer, and the industrial instrument that covers them;

2. whether the relevant work performed by the labour hire employees is for the provision of a service rather than the supply of labour;

3. historical industrial arrangements between the host and employer;

4. the connection between the employer and the host; and

5. the nature of the work arrangement.

There are also prescribed circumstances where the FWC will be unable to make RLHAOs. These include:

1. where the employees are engaged through apprenticeships or training arrangements;

2. where the employees are engaged for a period of no longer than three months; or

3. where the FWC issues an exemption.

Whilst the third exception to the RLHAOs has yet to be explored in great depth, it has been indicated in the explanatory memorandum and accompanying Government discourse that the provision of highly specialised expert services, and the engagement of labour in distinct periods to scale a workforce would be covered by this exception.
If a dispute arose regarding the correct rate of pay under a RLHAO, the FWC would be given the jurisdiction to determine these disputes.

Other matters

The Bill also implements strong anti-avoidance measures that seek to prevent entities from carrying out schemes for the purpose of avoiding labour hire regulation. The anti-avoidance provisions extend to the adoption of:

1. corporate structures to avoid RHLAOs;

2. short-term arrangements to avoid RHLAOs; and

3. independent contractors over labour hire employees to avoid RHLAOs.

The anti-avoidance measures would be civil remedy provisions under the Fair Work Act 2009 (Cth) meaning that significant fines could be incurred.
Whilst the Bill appears unlikely to be passed until 2024, the majority of provisions relating to labour hire will take effect from the day after the Bill is passed. However, it is proposed that the FWC's ability to make orders made under the amendments would not come into effect before 1 November 2024.

What do these proposed changes mean for employers and businesses?

The proposal to bring pay parity between labour hire workers and ordinary employees is  part of the Albanese Labour Government's tough position on the labour hire industry. The costs for labour hire companies and the host employers who engage their services will dramatically increase under the Bill and will likely jeopardise people's jobs.

Whilst the Bill is yet to pass either chambers of Parliament, those associated with the labour hire industry should be wary of the significant ramifications of this Bill and begin taking steps to consider the impact  these proposed changes will have on their business.