Same job/same pay: a bold and novel proposal for labour market regulation - Contract of Employment

In recent years the Australian Labor Party (ALP or Opposition) has placed great emphasis on the need to address what it sees as the problem of insecure work and low wages. Its policy platform for this election extends the notion of 'insecure work' far more broadly than merely casual employment. In recent weeks Leader of the Opposition, Anthony Albanese, and his industrial relations spokesperson, Tony Burke, grouped together people working on rolling fixed term contracts, contractors in the gig economy and employees of labour hire companies, as 'insecure workers'.¹

A useful way to get a grip on the impact of the proposals the ALP is taking to the Federal election is to think about the part such workers play in the labour market and the differences between their work experience and that of conventional permanent full time employees. On the 19^th April, the Australian Financial Review has editorialised on the issue, referring to a report co-authored by the ALP candidate for the seat of Parramatta, which reported widespread support amongst Uber drivers for the flexibility their engagement model provides.² The differences with an employment model are stark.

At a high level, the ALP's policies seek to remove those differences. It seeks to do this through a formidable range of policy proposals that address issues such as:

making job security an object of the Fair Work Act 2009 (FW Act);
extending the powers of the Fair Work Commission to include 'employee-like' forms of work;
legislating 'a fair, objective test to determine when a worker can be classified as a casual';
limiting the number of consecutive fixed-term contracts that an employer can offer the same role;
developing portable entitlement schemes for annual leave, sick leave and long service leave 'for Australians in insecure work'; and
ensuring that 'workers employed through labour hire companies receive no less than workers employed directly'. ³

We will address these proposals throughout our Federal Election series. They each raise complex and challenging issues for Australian business, not least because of their novelty. If implemented they will require some significant adjustment to existing practices. In this article, our focus is on the ALP proposal that the FW Act be amended to give effect to the so-called 'same job same pay' principle.

This principle was part of Labor's election platform for the May 2019 Federal Election and expanded upon in a private member's Bill introduced by Mr Albanese, in November 2021.⁴

In that respect, the proposal is unique among the many we will address in our Federal Election series. Rather than having to extrapolate from policy pronouncements, we are able to explore this proposal down by reference to specific legislation, already introduced to the parliament, and to which the ALP remains committed. The fact the Government voted against the legislation neatly frames the analysis ahead of the election.

To set the scene, the Bill was strongly criticised by business representatives and other observers at the time of its introduction.⁵ In contrast, it was supported by the Australian Council of Trade Unions (ACTU) and endorsed by a number of academic commentators.⁶

As is the usual fate of private members' bills, the November Bill did not become law. However, in recent weeks both the Leader of the Opposition and the Shadow Minister for Industrial Relations have been unequivocal in their commitment to legislating to implement the same job/same pay principle.⁷

If passed into law, this proposal could severely inhibit the use of labour hire and the provision of labour in connection with business services. That is its clear purpose and the ALP has not shied away from that fact.

What is proposed?

According to the Explanatory Memorandum for the November Bill, the purpose of the proposed legislation was 'to ensure that workers employed through labour hire companies will receive no less than the same pay as workers employed directly'.

This objective is to be achieved by means of a two-pronged strategy:

firstly, by imposing a same job same pay obligation (SJSP Obligation) on labour hire businesses; and
secondly, by imposing a series of obligations upon hosts who enter into contracts or arrangements with labour hire businesses.

What is the SJSP Obligation?

Judging by the November Bill, the SJSP Obligation is to be enshrined in the National Employment Standards in Part 2-2 of the FW Act. This means that the SJSP Obligation would be enforceable in its own right, and also that it would not be permissible to derogate from the Obligation by means of an enterprise agreement or any other kind of industrial or contractual arrangement.

In simple terms, labour hire businesses would be required to afford to all workers whom they provided to another person (host) 'pay and conditions which are no less favourable than those that would be required to be paid' to an employee of the host performing the duties of the supplied worker and working the same hours or completing the same quantity of work.

The SJSP Obligation would also apply in situations where a labour hire business was engaged to provide workers to an associated entity of a host that had an enterprise agreement covering the work to be performed by employees of the labour hire provider.

Labour hire businesses would also be required to pay casual employees provided by them either the casual loading that would be required to be paid to a casual employee of the host or, if there was no such loading, 'a casual loading that at least equals the casual loading for award/agreement free employees'.

What is a labour hire business?

For purposes of the proposed legislation, a 'labour hire business' is 'a person who, in the course of carrying on a business, ordinarily supplies a worker or workers to perform work for another person'.

This approach is consistent with that which has been adopted in labour hire legislation in Queensland, South Australia and the ACT.⁸ It is, however, markedly different from that set out in section 7(1)(a) of the Victorian Labour Hire Licensing Act 2018 which requires not only that a provider must supply workers to a host to do work, but also that the worker must perform the work 'in and as part of a business or undertaking of the host'.

It is not entirely clear just what the effect of the omission of the Victorian qualifier would be in practice. It could potentially be highly significant: it could mean, for example, that businesses that are not labour hire providers in the conventional sense - such as those that undertake specialised installation or maintenance work or who provide ancillary services, including catering or cleaning - could find themselves characterised as 'labour hire businesses' for purposes of the legislation, even though the workers they supply are not in any meaningful sense under the direction and control of the host.

This will be a key area to watch if the ALP win government and implement the proposal. Its precise coverage will be a matter of critical importance.

Who is a host and what are their obligations?

A host, meanwhile, is to be a national system employer that engages or proposes to engage a labour hire business either directly or through an associated entity that has an enterprise agreement that covers the work to be performed by employees of the labour hire business.⁹ The proposed Part 2.7A of the FW Act would impose a series of important obligations on corporations that are hosts vis-à-vis labour hire businesses engaged by them, including:

providing the labour hire business with 'all the information that . [it]. reasonably requires' to comply with its SJSP Obligations;
not engaging any labour hire business unless that business agrees, as part of the terms of engagement, to comply with the SJSP Obligation;
taking 'all reasonable steps' during the course of an engagement to ensure that the labour hire business has complied, and is complying, with the SJSP Obligation;
not entering into a contract or arrangement whereby they as host are 'prohibited from offering employment' to a labour hire worker supplied by the labour hire business';
ensuring that any information concerning vacancies in its enterprise that are available to its own employees is also available to labour hire employees who perform work at that workplace;
ensuring that workers supplied to it by a labour hire business are provided with access to the same 'amenities and collective facilities' (such as wash rooms, canteens etc.) as its own employees;
ensuring that workers supplied by a labour hire business are provided with access to the same training opportunities as its own employees; and
providing workers supplied by a labour hire business with the same rights as its own employees over determination of hours and location of work 'including, but not limited to, rights to consultation, reply and notice'.

These obligations would in many respects require hosts to treat workers supplied by a labour hire business as if they were its own employees. If they became law they would inevitably - and indeed are clearly intended to - have the effect of making the use of labour hire arrangements less attractive to hosts in many situations.

Some commentators have asserted that, to the extent that they are directed to eliminating exploitative labour hire arrangements, that may not be an unreasonable objective. But to the extent that the proposed legislation would inhibit the use of what has become regarded as a legitimate form of engagement of labour, and the provision of business services, it would constitute a quite unprecedented interference with the operation the labour market.

Other observers point out that limiting access to such arrangements may seriously disadvantage workers for whom employment with labour hire providers can be a welcome source of enhanced income and flexible work arrangements.

It would be interesting to see these matters debated during the election campaign. That has not yet occurred, but it is easy to envisage what the opposing positions would be.

Exclusions

The November Bill contemplated a number of exclusions (and there is no reason to suspect they do not remain ALP Policy), both from the SJSP Obligation and the obligations of hosts. They included:

where the host employer employs fewer than 15 employees;
where the contract or arrangement under which workers are supplied relates only to the temporary replacement of workers who are on leave (paid or unpaid) for three months or less, and the contract or arrangement specifies that it is to terminate at the end of the leave period; and
where:
- the contract or arrangement relates only to the supply of workers temporarily to supplement the host's workforce for three months or less; and
- the need to supplement the workforce stems from a demand for goods or services, rather than a deliberate reduction in the size of the workforce; and
- the host has not entered into a further labour hire arrangement that deals exclusively with surge capacity.

Potential impacts

It is clear from the foregoing that a significant consequence of the enactment of legislation along the lines of the November Bill would be to make the use of labour hire arrangements considerably less attractive both from the perspective of hosts and providers. In most cases, it may be uneconomic and unworkable.

Critics argue that it would inappropriately constrain the capacity of Australian businesses to access an important source of flexibility in their endeavours to respond to market fluctuations, technological innovation and unexpected contingencies such as the COVID-19 pandemic. Some say it could also serve to limit workers' access to work arrangements that in many instances suit their needs, aspirations and personal circumstances.

In contrast, the proponents of the legislation argue there are some problematic practices in some parts of the labour hire sector that need to be addressed. Even assuming that this is the case, it is important to note that there already exist ways of addressing abusive behaviours.

For a start, labour hire businesses are subject to the same laws as the hosts to whom they supply labour. They are required to comply with modern awards and can be forced to engage in enterprise bargaining in just the same way as hosts¹⁰. This suggests that perhaps the pay differential between (some) labour hire employees and direct employees engaged by hosts is more a function of the operation of the labour market than any particular vice in the labour hire mechanism. At a time of historically low unemployment, these arrangements may simply be a reflection of the laws of supply and demand.

Further, even if it is assumed that some regulatory adjustment is necessary to address legitimate concerns about certain practices in the sector, the lack of clarity in what was proposed in the November Bill has the capacity to generate a great deal of confusion and uncertainty. For example, the lack of precision as to what would constitute a 'labour hire business' could have the effect that service providers and contractors of all kinds could find that they were covered by the legislation even though they were not labour hire providers in the conventional sense.

They could even find that they were regarded as labour hire businesses for some purposes and not for others. This in turn could put both the contractors and their employees in a quite invidious position in some contexts (for example because employees' terms and conditions might vary from assignment to assignment depending on the terms and conditions provided by different hosts).

Again, the proposed requirement that hosts must take 'all reasonable steps to ensure that the labour hire business has complied and is complying' with the SJSP Obligation' might be administratively onerous for both host and provider and introduce a significant element of uncertainty into relations between labour hire providers and hosts.

This points to the fact that in complying with the SJSP Obligation in some circumstances it might be difficult to determine what pay and conditions are required where the host does not employ anyone to do the work performed by the workers supplied.

In some instances it would be obvious enough what the reference point ought to be - for example, where the host was covered by an enterprise agreement that covered all of its employees. But what of a situation where there was no enterprise agreement? Presumably the relevant modern award would be used as the reference point. But which relevant award should be used? The award applicable to the industry in which the host is engaged, or the award that covers the work performed by the workers provided by the labour hire business, which may be 'in' another industry?

By way of illustration of potential complexities, take the situation where the labour hire business had in place an enterprise agreement of its own that would, on its face, apply to its employees whilst working for the host, but the host had an enterprise agreement with less advantageous terms than the provider's agreement, or did not have any agreement and operated under the relevant modern award. Surely it would be anomalous if the employees of the labour hire business were to lose the benefit of 'their' enterprise agreement, and be faced instead with the possibly less advantageous terms of the host's agreement, or the award that covered its business?

Not only does this appear to be an anomalous outcome in practical terms, it would also create uncertainty for employees whose terms and conditions may vary depending upon where they were working and would sit uncomfortably with the statutory object of 'achieving productivity and fairness through an emphasis on enterprise-level enterprise bargaining'.¹¹

As against that, the labour hire business would not be positively obliged to reduce the terms and conditions of its employees to match those of the host: what it must do is ensure that the terms and conditions afforded to its employees are not less favourable than those provided by the host. Indeed, it would not be possible for the labour hire business to derogate from the terms of its own agreement with its employees - the problem may be, however, that those employees would be able to 'cherry-pick' as between their own agreement and any more favourable terms and conditions provided by the host.

Such potential anomalies illustrate the nature and complexity of the issues involved in giving effect to the proposed SJSP Obligation and this aspect of the ALP policy. Meanwhile, the Coalition Government has no policy proposal which deals with these issues, other than a somewhat dated and rather vague commitment to the introduction of a national labour hire legislation to apply to a number of specific areas of the economy.¹²

Footnotes

¹ Australian Financial Review - 12 April 2022 - 'Labour claim of an increase in insecure work is more fiction that fact' - Jennifer Hewett.

² Australian Financial Review - 19 April 2022 ' 'Labor trips up again on 'insecure work' numbers

³ This extensive list of commitments is drawn from 'Labor's Secure Australian Jobs Plan' which was released in February 2021.

⁴ See Fair Work Amendment (Same Job, Same Pay) Bill 2021 (November Bill), and accompanying Explanatory Memorandum.

⁵ See, e.g., Corrs Chambers Westgarth, 'Same Job, Same Pay: Confused Outcome'; Charles Cameron (Recruitment, Consulting and Staffing Association), 'Labor's Same Job Same Pay bill a Triple Threat.to Business, to Workers and to Economic Confidence', 24 November, 2021; ACCI, 'FW Amendment tramples the preferences of employees' Media Release, 23 November 2021; and Jennifer Westacott (BCA), quoted in J Greber, 'New-look Albo: I'm comfortable in the boardrooms as well as the pub', Australian Financial Review, 24 February 2022.

⁶ See, e.g., 'Labour hire bill greeted by expert, panned by employers', Workplace Express, 23 November 2021.

⁷ Anthony Albanese, Press Conference, 16 March 2022; Tony Burke, Press Release, 'Government Must Explain Labour Hire Report', 21 March 2022.

⁸ Labour Hire Licensing Act 2017 (Qld), section 7(1); Labour Hire Licensing Act 2017 (SA), section 7; Labour Hire Licensing Act 2020 (ACT), section 7.

⁹ For the meaning of 'national system employer', see FW Act, section 14.

¹⁰ Most obviously by being made subject to a Majority Support Determination under sections 236 and 237 of the FW Act.

¹¹ FW Act, section 3(g).

¹² See, e.g., 'Porter sets out "guiding principles" for national labour hire scheme', Workplace Express, 24 January 2020.

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