The Fair Work Commission (FWC) has enforced an enterprise agreement clause requiring an employer to offer employment to casual employees of a labour hire contractor under a “casual conversion” clause.

Implications for employers

The FWC has recently re-examined the issue of enterprise agreements containing terms about labour hire. In this case, the casual conversion clause was found to be enforceable. However, the extent to which an agreement can regulate the contractual relationship between an employer and a labour hire company (for instance, in requiring that labour hire company to pay its employees certain rates) is a question of degree.

Employers engaged in enterprise bargaining should carefully consider any proposed casual conversion clauses and ensure that the impact of such clauses – particularly on the use of labour hire – is fully appreciated.

Background

The use of casual labour hire has long been a contentious industrial practice, with unions arguing it deprives workers of employment security. To counteract this, many enterprise agreements contain terms relating to the use of labour hire – even though neither the labour hire company nor its employees are covered by the agreement. Particularly common are “casual conversion” clauses, which seek to require an employer to offer casual labour hire workers permanent employment with the host company after a certain period of time.

The National Union of Workers (NUW) filed an application under the dispute resolution provision of an enterprise bargaining agreement, on behalf of members working at Alto Manufacturing – a plastics food manufacturing operation in Bankstown, New South Wales.

Alto has a workforce at the site of around 150 people, 30 of whom are engaged under a labour hire arrangement between Alto and Labour Power.

The dispute concerned a “casual conversion” clause in the enterprise agreement which, broadly speaking, seeks to provide workers with the right to “convert” from casual employment with the labour hire company to permanent employment with the host company, Alto. Alto had refused requests of two casual workers (employees of Labour Hire) to convert to permanent employees of Alto.

The enterprise agreement provided that:

… casual employees, whether directly engaged by the Employer or not, will be covered on the same terms and conditions as apply to other employees who are covered by this Agreement.

It went on to state that a casual employee (other than an “irregular casual employee”) has a right to elect to have his or her contract of employment converted to full-time employment or part-time employment.

Legislative background

At the centre of this case is a dispute about whether the casual conversion clause – insofar as it relates to employees of a company not covered by the agreement – is a permitted matter under section 172 of the Fair Work Act (FW Act). Section 172 exhaustively lists the following permitted matters which may form part of an enterprise agreement:

  1. matters pertaining to the relationship between an employer that will be covered by the agreement and that employer's employees who will be covered by the agreement;
  2. matters pertaining to the relationship between the employer or employers, and the employee organisation or employee organisations, that will be covered by the agreement;
  3. deductions from wages for any purpose authorised by an employee who will be covered by the agreement; and
  4. how the agreement will operate.

The NUW argued that a casual employee not directly employed by Alto (but rather, by a labour hire company) had the right to elect to convert to permanent employment under the enterprise agreement. It pointed to the fact that the enterprise agreement expressly contemplated the existence of casual employees not directly engaged by Alto. It said that in negotiations for the enterprise agreement, it was agreed that the casual conversion provisions would apply to casuals – noting that Alto did not directly employ casual employees, in any event.

In defending the application, Alto submitted that the clause was unenforceable in that it sought to restrict or qualify the engagement of parties other than those covered by the agreement (that is, Alto and its employees). It argued that the clause is only enforceable as a permitted matter to the extent it operates to prevent the undercutting of wages and conditions by requiring the employer to agree to pay labour hire casuals no less than its own employees, therefore improving the job security of employees. It argued that the clause was essentially a prohibition on the hiring of contractors, contrary to the established High Court principle in Ex Parte Cocks (1968) CLR 313, and did not have a sufficient connection to the relationship of Alto and its employees.

The FWC found in favour of the NUW and made orders requiring Alto to facilitate the making of offers of employment to the casual workers. Deputy President Lawrence determined that the clause did derive from a “permitted matter”, in that it was a “clear attempt to protect the job security of Alto employees”, thereby falling under section 172(a) of the FW Act. This finding was based on the implication that, in limiting the use of casual labour on a long term basis, Alto is more likely to favour permanent employment.

The FWC’s decision in this matter arguably leaves the door open for enterprise agreements to go further in regulating the use of labour hire. Whilst the High Court has made it clear that enterprise agreements cannot prohibit labour hire, it appears that there is substantial scope for agreements to regulate (and, by extension, limit) the use of labour hire.

National Union of Workers v Alto Manufacturing Pty Ltd [2015] FWC 2730