In his press club speech on 31 August 2023, just days before the public release of the Closing Loopholes Bill, Minister for Employment and Workplace Relations the Hon Tony Burke MP described the problem of the labour hire loophole as follows:
“But if you have an enterprise agreement in place, the labour hire loophole is where the employer has agreed for particular tasks, particular classifications, that there’ll be a particular rate of pay. And then, having agreed to it, having had it registered, says, “But I’m now going to use someone who’s technically a different employer,” and those rules instantly disappear, and now we go right back down to the award again. That’s a loophole. It’s not what’s intended. It’s currently legal for the companies that are doing it.“
“…labour hire shouldn’t be used as a device to undercut what’s been registered and agreed to.“
The Minister defiantly stated, “for anyone who does want to stop us closing the loopholes – defend them. Because so far, no-one has defended any of the loopholes I’ve described”.
The invitation to examine the problem, the policy to deal with it, the implementation of the policy, and even the politics is accepted.
Let’s start with agreeing on the problem. The Minister claims labour hire can be used as a device where a company agrees to a rate of pay in an enterprise agreement and then avoid that agreement by shifting the work to a different employer which pays an inferior rate. This is the “loophole” that allows companies to circumvent how the current law is intended to work. Notice the language used of a “device”. The Minister apparently now sees a device, a trick, a scam that has been taking place for 14 years under the Gillard Government legislation enacted in 2009.
So, is there a loophole that allows companies to circumvent the way the current law is intended to work? To answer that question, let’s examine how the current system deals with this problem.
First, outsourcing work because your employees have entitlements under an enterprise agreement is not lawful. Not under this legislation or previous versions of it. So, the loophole claim does not get off the runway.
Second, employees of the labour hire company working alongside employees earning more have a fairly simple path to higher wages. It is the same path that the host employer’s employees took – that is, to use the system to make an enterprise agreement that contains a higher rate of pay. They would have all the industrial weapons afforded by the legislation, including protected industrial action. This is the premise of enterprise bargaining which underpins the legislation and has done so since 1993, but now staff have the benefit of new options like seeking to engage in multi-employer bargaining, and in many cases, to initiate bargaining simply by requesting that the employer do so.
Third, even the Minister acknowledges there are good reasons for labour hire. So, which are good and which are a device? Read the Bill and see if you come away any wiser.
The reality is that describing this problem as a loophole is wrong. It is a standard issue industrial problem which the legislation already deals with. There is no policy or legal vacuum that needs to be filled.
That’s the problem and the policy – what about implementation?
This is where the Bill has the capacity to create serious distortions.
Consider the situation where a labour hire company has negotiated its own enterprise agreement with its employees. As with any enterprise agreement, the terms and conditions agreed are a mix of swings and roundabouts. That might mean a higher rate of pay than at other enterprises in return for other conditions being changed or reduced, but it may also mean a lower rate of pay in exchange for other benefits such as additional leave. The point of enterprise agreements is that they are negotiated at an enterprise level and are right for that business at that time. The way the system will work if the Bill passes is that those employees can take the high-water mark of the rate of pay in their own agreement or the rate of pay of the “host employer” plus all other conditions provided by the direct employer. The integrity of the agreement making system suffers in return for a pick and choose approach to pay rates.
There are other issues. As mentioned above, the Bill makes no distinction between the use of labour hire as a so-called device and its integrous and proper use. There is a long list of factors that the Tribunal must take into account (if the parties raise them) in deciding whether the legislative bias towards making an order is displaced, but it can also take into account any other factors it considers relevant in ultimately deciding what is “fair and reasonable” – about as vague and amorphous as it gets. Different Tribunal members, each deciding the matter diligently and in line with the legislation, can come to different conclusions because the standard adopted is discretionary and impressionistic. What it does supply, though, is a great political defence – who can argue against a law that is directed to achieving a “fair and reasonable” outcome?
In addition, rather than specialised services labour hire being permissible – as was promised to be the case – it is just one factor that goes into a long shopping list of factors before a result gets spat out. There is no reason why this would necessarily result in an order not being made. Indeed, the default position with specialised labour hire is the same as for any other case – an order must issue unless the employer convinces the Commission it would not be “fair and reasonable”.
The new provisions also jar with other parts of the system. The transfer of business provisions permit the Commission to make an order to stop an enterprise agreement (and its rates of pay) from moving with employees to a new employer in some cases, including outsourcing scenarios. Such an order is the result of a judgment call by the Commission that it’s not appropriate for that instrument – including sometimes a higher rate of pay – to transfer. That outcome could be undermined by the subsequent making of a protected rate of pay order that imports a host employer’s rate of pay where those employees later provide services to the host employer. Again, the system is, by design, weighted towards that outcome.
This legislation is not, however, ill conceived. Not in the real politik sense. It is there for a reason – just not the reason stated. It is not closing a loophole or preventing the use of a device to undercut agreements. If it were really about closing a loophole, then it manifestly goes further than its intended aim. If the government is really targeting a narrow range of abuses, it is obvious that its scope must be narrowed now. As noted, English Parliamentary Draftsman Stephen Laws CB has warned, Acts of Parliament “… cannot be steered to the right target: they have to have been well aimed before having been launched. If an Act misses its target, it may take at least a couple of years to put things right. In the meantime, the government’s policy will not be delivered, and the law may be producing the wrong result in case after case”.
So why make this change to the law when its scope and effects so clearly exceed its stated purpose? One can readily speculate that the real issue is distaste for developments at workplaces that have moved us away from centralised negotiations, usually with one or more powerful unions, that would implement a single set of rules for a workplace or business. A dispersal of work across different providers, who compete with each other on factors including labour costs and have their own sets of conditions, does not fit that mould, and in turn, reduces unions’ influence and the attraction of membership. This change seeks to reverse those trends, or at least buck the trend.
What we see here is a workplace-level implementation of the same centralising impulse that drove the government’s earlier amendments, allowing employers to be dragged into multi-employer bargaining, and indeed permitting employers to be added against their will to the coverage of enterprise agreements they had no role in negotiating.
Now, we can debate whether these macro system changes are good or bad. There are complex policy debates to be had here – but we cannot have them if these changes are positioned as ‘closing a loophole’ to cover for their real purpose.
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