Fair Work Australia has rejected the Transport Workers Union's (TWU) call to limit the amount of work that Qantas Airways can outsource.
In the heart of the dispute, the union, which represents baggage handlers and other ground crew, wants the industrial court to cap the number of "outside hires" Qantas can bring in at any one time, to no more than a fifth of Qantas' full-time and part-time employees.
Qantas had opposed the claim, saying that the clause would increase costs and reduce flexibility without enhancing its productivity.
"In our view, this claim fails on merit. Qantas has for many years utilised labour hire and contractors to provide it with flexibility of labour supply to reduce its cost. It has not been shown that current Qantas employees have been adversely affected by this practice," Fair Work said in a judgement released on Wednesday, 8 August 2012.
"To interfere with the management's decisions on such a matter would require clear and strong evidence of unfairness. No such case has been established with respect to current employees or otherwise," it added.
The dispute between three unions, including the TWU, and Qantas last year culminated in the carrier grounding its fleet in October 2011.
TWU had also demanded pay increases of 5% annually over two years while the airline proposed a pay increase of 3% annually over the next three years and for flexibility in its operations.
"In our view, a 3% increase is in line with appropriate other measures and has due regard to the current circumstances of the employees and Qantas," Fair Work ruled.
Qantas, meanwhile, welcomed the decision by the industrial court.
"It's clear that the TWU's demands were out of step with what is fair and reasonable for a union to demand of any employer," said a spokeswoman.
"Importantly, Qantas is free to run our business as we see fit and not be dictated by union officials who do not have the airline's best interests at heart."
The decision by Fair Work Australia also prevents the TWU from taking industrial action for at least the next two years.