The last word on contractor clauses in Enterprise Agreements

The Full Bench of Fair Work Australia (FWA) has spoken. Any clause proposed by a union in an enterprise agreement which requires that an employer only engage contractors with a union enterprise agreement or otherwise restricts the use of contractors beyond equivalence in employee pay is illegal.

Airport Fuel Services Pty Ltd v TWU

At last we know where the line is drawn. The case was Airport Fuel Services Pty Ltd v TWU, where the TWU sought a protected action ballot supporting clauses requiring on-site contractors to have an enterprise agreement with the TWU. The matter was first heard before SDP Hamberger on May 14, 2010, where the AFS opposed the application, arguing that such a clause is not a “permitted matter” and that the application should fail.

SDP Hamberger, referring to the explanatory memorandum, held that a clause designed to protect employee job security in respect of contractors (Item 672 of the explanatory memorandum) is a permitted matter as it pertains to the employment relationship of the employee. As the clause does not prohibit the engagement of labour hire – it was permitted. The decision was appealed by AFS with the support of the AI Group.

The Full Bench of FWA quashed SDP Hamberger’s orders for the following reasons:

1. The clauses proposed by the TWU were “substantive” clauses requiring AFS to ensure that an on-site contractor has an enterprise agreement with the TWU.

2. In prior cases FWA allowed clauses that:

a. required an employer to ensure that a contractor’s employees, who worked on-site for the employer, enjoyed similar rates of pay as the employer’s employees;

b. required the employer to instruct labour hire providers to pay the labour hire employees at the employer’s site-rate.

3. As the TWU clause seeks to restrict or qualify what contractors AFS use it is not a matter that pertains to the employment relationship.

4. In any event, the TWU is required to have a reasonable belief that the clauses are permitted at law. The mere fact that the TWU drafted the clauses with the advice and support of their lawyers did not give rise to a reasonable belief. The Full Bench held the TWU could not have reasonably held the view that the clause was legal.

What does this means for employers?

• The unions will always press to limit the use of contractors and labour hire on-site. When negotiating an enterprise agreement, keep in mind that the following types of clauses are illegal:

a. Clauses that require the contractor/labour hire provider to pay its employees more than the employer’s rate for comparable employees;
b. Clauses that require the contractors/labour hire provider to have an enterprise agreement with the union; and/or

c. Clauses that restrict or otherwise qualify the access to labour hire providers.

However, note that where the Union proposes a clause that requires payment of contractor/labour hire providers’ employees at the same rate of pay as the employer’s employees, this will be legal.

• By securing employment the cases suggest that any arrangement that prevents using cheap third party labour undermines the retention of higher paid employees.
• As a result of this case, Airport Fuel Services Pty Ltd v TWU, the line is very clear about what is and is not legal in terms of Unions seeking to embed anti-contractor clauses in your enterprise agreements.

Make sure you are very careful when the union comes knocking!

Andrew Douglas is the Managing Director of Douglas LPT, an integrated legal, HR, recruiting and training business. He is the Editor-in-Chief of the loose leaf publication, The OHS Handbook, and writes on workplace law issues such as Industrial Relations, Employment law, OHS, Equal Opportunity, Privacy, Surveillance and Workers Compensation. He is the principal of the legal division of Douglas LPT and appears in courts, tribunals and Commissions throughout Australia.