By Charles Power

The transfer of employment provisions in the Fair Work Act 2009 (Cth) (FW Act) provide continuity of service in certain insourcing arrangements.

For example, if you decide to outsource a function in your business to a third-party contractor and your employees performing the work of that function transfer their employment to that contractor and perform the same or similar work for the contractor, then the FW Act requires the contractor to recognise the service the transferring employees had with you.

A similar outcome is possible if you ‘insource’ a function from a third-party contractor and recruit some of the contractor’s employees.

Take the example of a human resource management company employing four security guards to staff its reception desk. The company decides it no longer wishes to employ security guards and enters into a contract with a security firm to provide the services. The security firm employs all four guards who perform the same work for the security company. This is said to constitute a transfer of business.

Suppose after two years, the human resource management company decides that it no longer wishes to outsource the security work and terminates its contract with the security firm and offers employment to the security guards employed by the security firm. Those guards accept the offers of employment and perform the same work as employees of the human resource management company as they did for the security company. This is also said to be a transfer of business.

One of the unresolved issues with the operation of these provisions is how they apply when employees transfer their employment to or from a labour hire company engaged by you.

A labour hire company does not undertake any part of the client’s business and usually the labour hire arrangement continues after the employee transfers. The contract between the client and a labour hire company is simply to provide labour. Should this not be distinguished from contracts with third-party providers to provide wider services, for example maintenance work?

The resolution of this issue depends on whether ‘outsourcing’ encompassed a situation in which an employee of a labour hire company working at a particular site, or on a particular project, ceases employment with the labour hire company to take up employment on the same site or project with the entity which owns or controls the site or operates the business in which the labour hire employee was engaged.

In Burdziejko v ERGT Australia Pty Ltd (2015) the Fair Work Commission (FWC) observed the transfer of employment provisions did not require a transfer of part or all of the business.

It ruled that where an employer engaged a labour hire company to provide supplementary labour and then decided to recruit that labour in-house, it had first outsourced the work to the labour hire company then insourced it. Therefore there was continuity of service.

The FWC took a different view in Abbott v Acciona Infrastructure Australia Pty Ltd (2018).

In this case, an employer involved in the construction of the Toowoomba Second Range Crossing Project, utilising labour hire companies to provide employees to perform work on the Project.

An employee transferred his employment from one of the labour hire companies to the construction employer.

Following his dismissal, the employee sought to argue that his service with the labour hire company should be counted when determining whether he had served the requisite qualifying period to access the FW Act unfair dismissal laws.

The FWC noted that ‘outsource’ means to contract work outside a company rather than employ more in-house staff. There is no apparent requirement that work must have been done in-house before it can be outsourced.

The term ‘outsource’ can apply where an employer currently undertakes work in-house or where it plans to undertake new work and decides that rather than directly employing persons to undertake that work, it will outsource the work so that it is undertaken by an external provider.

The FWC ruled the term ‘outsource’ does not apply where an employer engages labour from an external supplier to undertake any work within the employer’s business.

There is a distinction between an employer engaging supplementary labour through a labour hire company and outsourcing work.

In determining this distinction, the relevant considerations will be:

• whether the arrangement between the provider of the labour and the company engaging the labour continues after the supposed outsourcing has taken place;
• whether all or some of the labour hire employees in the particular workplace are offered employment at the time of the putative cessation of the outsourcing; and
• whether the company engaging the labour has some employees ‘in-house’ who are carrying out the work and will continue to do so.