The Closing Loopholes reforms introduced the ability for the Fair Work Commission (“FWC”) to issue Regulated Labour Hire Arrangement Orders (“RLHAO”), commonly known as “Same Job, Same Pay” orders. A RLHAO application can be made to the FWC seeking that labour hire workers receive at least the same rate of pay as direct employees of the host employer doing the same kind of work.

The Mining and Energy Union (“MEU”) has recently secured two RLHAO, each concerning labour hire workers undertaking work at two mine sites.

The decisions provide useful insights into how the FWC will approach RLHAO applications and the key factors it will consider in deciding whether to grant a RLHAO.

Under the Fair Work Act 2009 (Cth) there are certain circumstances where the FWC must make a RLHAO, and circumstances where it must not. The FWC must not make a RLHAO unless it is fair and reasonable in all of the circumstances. In assessing this the FWC will consider a range of factors, including:

• the pay arrangements that apply to employees of the host employer;
• the history of industrial arrangements applying to the host employer and labour hire employer;
• the relationship between the host employer and the labour hire employer;
• whether the arrangement is for the benefit of a joint venture or common enterprise;
• the terms and nature of the arrangement under which the work is performed; and
• any other matter the FWC considers relevant.

The FWC has considerable flexibility in determining what is fair and reasonable when considering a RLHAO application.

The recent RLHAO applications focused on two labour hire employers who supplied workers to mining companies.

The First Application

In this application the MEU sought a RLHAO which would provide labour hire workers with annual pay increases of around $35,000, which would place them in-line with their counterparts employed directly by the mine. The RLHAO was opposed by the labour hire employers and the mine, who argued:

• there was a material difference in the skills of the labour hire workers and direct employees of the mine (the latter being more highly skilled);
• the use of labour hire workers was not to undercut wages;
• the enterprise agreement at the mine was negotiated with direct employees and its terms were not appropriate for the labour hire workers; and
• the labour hire arrangement would become unprofitable.

When determining what was fair and reasonable, the FWC accepted that granting the RLHAO would, among other things, increase the financial liabilities of each of the labour hire companies (particularly for accrued annual leave and personal leave). This consideration weighted against the making of a RLHAO being fair and reasonable. The FWC accepted that some commercial arrangements could become wholly unviable and terminating those arrangements could result in job losses.

However, despite these factors, FWC said the pay differentials weighed heavily in favour of a conclusion that it would be fair and reasonable to make orders sought.

The FWC ultimately found that “after balancing the various interests affected by an order in each case, is that the unfairness created by labour hire production operators at the Mine doing the same job as direct employees of [the mine], yet being paid significantly less than the direct employees, outweighs those considerations which support a conclusion that it is not fair and reasonable in all the circumstances to make the orders sought.”

The Second Application

In this  application both labour hire companies opposed the making of the RLHAO, arguing that granting the RLHAO would not be fair and reasonable as it would result in increased costs (including due to increased leave liabilities), significantly impact profitability and disrupt existing industrial agreements. The pay discrepancies in this application ranged from around $17,000 – $29,000 per year.

In assessing whether it was fair and reasonable to make the RLHAO, the FWC reiterated that a broad, value-based judgment was required which involved balancing the competing interests. Although the FWC acknowledged that by making the RLHAO many commercial arrangements of the labour hire companies may become unviable, it found that the additional costs were not significant enough to reject the RLHAO and, accordingly, the RLHAO was granted.

Learnings

When it comes to determining what is fair and reasonable, these applications show that some level of unfairness and unreasonableness will not necessarily prevent the FWC from making a RLHAO, particularly where there is a substantial pay discrepancy.

In both cases, the labour hire employers did not convince the FWC that granting the orders would be unfair and unreasonable and the existence of pay discrepancies outweighed all attempts to persuade the FWC otherwise.

The key takeaway for labour hire employers is that they should proactively review their pay structures for the existence of any pay discrepancies where labour hire workers are performing the same role as direct employees of a host employer. Existing labour hire arrangements need to be considered against the existence of any pay discrepancies and future labour hire arrangements need to be negotiated against the backdrop of the FWC’s ability to make a RLHAO so that the terms of any arrangement remain commercial.

Read more about RLHAO here.