The Construction sector often engages labour hire workers to enable it to rapidly scale up or down to meet project demands and/or changing market conditions. The sector is reported as using labour hire arrangements at twice the rate of the economy-wide average.

The introduction of the ‘Same Job, Same Pay’ reforms to the Fair Work Act 2009 (Cth) (‘FWA’) under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Cth) (‘Closing Loopholes Act’) is likely to have significant flow on effects on the construction sector and in turn on projects, in the form of increased costs and additional administrative and compliance matters.

Schedule 1, Part 6 of the Closing Loopholes Act inserted ‘Part 2-7A – Regulated labour hire arrangement orders’ (‘Orders’) into the FWA (‘Amendments’).

Below we identify the key steps construction industry participants should take in anticipation of both applications for Orders and Orders being made, as well as providing an overview of the Amendments relevant to ‘host employers’.

For further information and assistance in relation to the Amendments, including in relation to implementing the steps outlined in the ‘key considerations for construction industry participants’ section below, please contact us.

Overview and impact of the Amendments

The Amendments empower the Fair Work Commission (‘FWC’) to make Orders, subject to criteria and exceptions, requiring labour hire employers (i.e. labour hire companies) to pay their employees (i.e. labour hire staff) no less than the pay they would receive under the host employer’s (i.e. the business engaging labour hire employers to provide labour hire staff) enterprise agreement (or other covered employment instrument) if the employees were directly employed by the host employer.

Whilst the Amendments will have a direct impact on labour hire employers by requiring them (where an Order is made) to pay their employees the same “full rate of pay” that the host employer pays its employees under an employment instrument – at least some of the increased costs to labour hire employers are likely to be passed on to host employers.

The Amendments commenced on 15 December 2023. However, Orders cannot come into force any earlier than 1 November 2024.

Despite this we are already seeing that applications for Orders will be made well ahead of 1 November– in particular, by unions – meaning that cost implications are likely to be felt immediately from 1 November. For example, the Mining and Energy Union has already applied to the FWC for an Order to require labour hire workers at the Callide mine in central Queensland to be paid the same as the direct workforce. Other unions are likely to follow suit.

Full rate of pay

The “full rate of pay” is defined in section 18 of the FWA to include:

• incentive based payments and bonuses;
• loadings;
• monetary allowances;
• overtime or penalty rates; and
• any other separately identifiable amounts.

How an Order is made (FWA s 306E)

An Order can be made by the FWC on the application of either, a labour hire employee, an employee of the host employer, an employee organisation such as a union, or a host employer.

Where an application for an Order has been made, the FWC must make an Order if it is satisfied that:

• a labour hire employer supplies or will supply, either directly or indirectly, one or more of their employees to perform work for a host employer; and
• a covered employment instrument, such as an enterprise agreement, that applies to the host employer would apply to the labour hire employees if the host employer were to directly employ those employees to perform work of that kind; and
• the host employer is not a small business employer.

However, the FWC must not make an Order:

• where the work to be performed is the provision of a service (rather than the supply of labour); or
• if it is satisfied that making the Order is not fair and reasonable in all the circumstances, having regard to matters listed in section 306E(8) (‘Fair and Reasonable Considerations’) of the FWA on which submissions are made.

Importantly, the FWC may only consider the Fair and Reasonable Considerations if submissions have been made on the matters. Accordingly, host employers should carefully consider whether to make submissions to the FWC in relation to these matters.

Host employers’ obligations if an Order is made

Host employers should familiarise themselves with obligations that may apply to them where an Order is made, for example:

• obligations concerning supplying labour hire employers with the information required to ensure labour hire employers’ duty to pay the protected rate of pay is met, on request (FWA s 306H);
• notification requirements to labour hire employers where an Order is in force and a new covered employment instrument is to become the host employment instrument covered by the Order (FWA s 306EC);
• obligations to apply to the FWC to vary an Order that is in force, or made and yet to be in force, where a new labour hire employer(s) will supply employees to perform work of that kind for the host employer (FWA s 306ED); and
• obligations arising in a tender process where it could be reasonably expected that a labour hire employer(s) who is a prospective tenderer would become covered by an Order, and subsequent obligations where there are successful tenderer(s) (FWA s 306EE).

Anti-avoidance provisions

Host employers should be aware that there are anti-avoidance provisions which apply retrospectively to conduct from 4 September 2023 and constitute civil penalty provisions. The provisions particularly relevant to host employers include prohibitions on:

• schemes seeking to prevent the FWC from making an Order in relation to any person(s) (FWA s 306S);
• schemes seeking to avoid the application of an Order that has been made (FWA s 306SA); and
• agreements resulting in host employers entering into successive short-term labour hire arrangements, to avoid paying a labour hire employee at a rate determined under or in accordance with Part 2-7A of the FWA (FWA s 306U).

Key considerations for construction industry participants

Construction industry participants that use labour hire staff should:

• familiarise themselves with the obligations (and consequent administrative requirements) on host employers during the application for an Order and once an Order is in force;
• familiarise themselves with the anti-avoidance provisions which will apply to conduct from 4 September 2023;
• assess the potential cost impacts to their business – noting that labour hire employers are likely to start increasing costs to accommodate the potential for Orders to be made in specific circumstances;
• consider re-negotiating commercial labour hire arrangements that are likely to be the subject of an Order – however, in doing so, host employers must ensure that they comply with the anti-avoidance provisions;
• host employers who are currently parties to contracts for the delivery of long-term projects that will be ongoing after 1 November 2024, and which rely significantly on labour hire staff, should review both their upstream and downstream contracts and determine whether:
  • the subcontracts include any mechanisms that may enable subcontractors to recover any potential cost increases resulting from the Amendments; and
  • there are any provisions in the upstream contracts that may assist the host employer in recovering some or all of these increased costs; and
• enter into discussions with their counterparties sooner rather than later in relation to any potentially significant cost impacts on projects already in delivery.