Wednesday, 6 September 2023

Latest Proposed IR Changes Under The Closing Loopholes Bill

On 4 September 2023, the Labor Government introduced the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Bill) into Parliament to further amend the Fair Work Act 2009 (Cth).

The Bill is significant – 278 pages long with 28 distinct parts. If passed later this year it will substantially impact employers and current workplace arrangements.

The Bill’s Significance and Scope 

The Bill follows other major amendments to the Fair Work Act by the Albanese Labor Government since its election in 2022 including the  Secure Jobs Better Pay Act and the Protecting Worker Entitlements Act. See our previous articles here and here for more information regarding these earlier changes.

The pace and significance of the changes made by the Albanese Government to the Fair Work Act highlights how industrial relations legislation is used as a political tool. The Fair Work Act that was introduced by the Rudd and Gillard Labor Government in 2009 was designed to undo WorkChoices introduced by the Howard Government in 2005. WorkChoices, which was pro-employer and anti-union, was viewed as a major contributing factor in Howard’s landslide election loss in 2007. As a result, successive Coalition Government’s between 2013 and 2022 were reluctant to make any significant reforms to Rudd and Gillard’s original Fair Work Act.

The changes proposed by the Albanese Government sees the pendulum swing all the way back. The legislation is the opposite of WorkChoices and is anti-employer and pro-union. Many employer groups have correctly labelled the Bill as being deeply flawed, unbalanced and likely to detrimentally impact most sectors of the Australian economy.

If the Bill passes, it meets almost everything on the Union movements legislative wish list.

This article highlights some of the major proposed changes which we consider will have the biggest impact on employers and our clients. Please note this article does not summarise all of the changes contained in the Bill, so please contact HR Legal for further advice on any aspect which is not covered in this article.

It is also important to bear in mind that the Bill is yet to be debated in Parliament. Hopefully amendments are made in the Senate.

Criminalisation of Wage Theft

The Bill proposes to introduce a new criminal offence for wage theft which applies to “intentional conduct”.

Employers who deliberately or intentionally underpay their staff could face:

  • In the case of an individual, a maximum of 10 years in jail or face fines capped out at 5,000 penalty units (currently $1,565,000); or
  • In the case of a corporation, 25,000 penalty units (currently $7,825,000); or
  • three times the amount that was underpaid (if that amount exceeds the maximum fine).

For an offence to have occurred, the person must mean to bring about the result – that is, to purposefully underpay staff – or be aware that such a result would occur.

The Explanatory Memorandum to the Bill clarifies that “underpayments that are accidental, inadvertent or based on a genuine mistake are not caught by the provision”.

The intention behind the wage theft criminalisation is to encourage compliance with laws that are already in place and for the purpose of deterrence, particularly where parties have intentionally tried to evade the laws.

The proposed wage theft provisions will apply prospectively, not retrospectively, to conduct that occurs after the commencement of the laws.

The Fair Work Act currently has civil (not criminal) framework for the enforcement of workplace rights and entitlements under the FW Act, and some states, including Victoria, have state based wage theft legislation. However this change is significant in that if passed, there would be criminal exposure for underpayments at a Federal level for the first time.


Same Job, Same Pay in Labour Hire Arrangements

As anticipated the Bill proposes “same job, same pay” requirements to address so called “labour hire loopholes” where labour hire employees are paid less than other employees at the same site under an enterprise agreement which does not apply to labour hire workers.

The Bill allows employees, unions and host employers to apply to the Fair Work Commission (FWC) for an order known as a “regulated labour hire arrangement order” (or “RLHAO”) that labour hire employees must be paid at least what they would receive under a host’s enterprise agreement or equivalent public sector determination. It won’t be “host employees” making these applications.

In other words – the RLHAO would require labour hire employees to be paid no less than what they would receive if they directly employed by the host business.

The FWC must not make such a RLHAO if it is not “fair and reasonable” in the circumstances – and parties (including affected businesses) will be provided with an opportunity to make submissions on this point.

There are some exemptions to making a RLHAO. For example, it may not be fair and reasonable to make such a RLHAO if work for the host employer is for the provision of a service as opposed to an arrangement that is only for the supply of labour.

Another exemption may be where a labour hire employee is engaged for a short-term period or under training arrangements.

Notably, these provisions will also not apply to small business employers – however they are less likely to engage significant numbers of labour hire employees.

These changes, if passed, would take effect from November 2024.

The changes if introduced are likely to severely damage the labour hire industry – an outcome which will be celebrated by the Union movement.


Changes To Casual Employment

The Bill seeks to amend the definition of a “casual employee” in the FW Act which was inserted by the previous Morrison Government to address a rise in cases of casual employees asserting they were in fact permanent employees, and seeking compensation and/or back pay as a result, including the Workpac v Rossato decision of the High Court (see our article here for more information).

Whilst it will retain the established concept – that is, someone who has no firm advance commitment to continuing and indefinite work is a casual employee– the amended definition would require parties to consider the ‘real substance’ and ‘practical reality’ of the employment relationship (and not just the terms of their employment contract).

Whether there is “no firm advance commitment” will be determined by looking at the employment relationship and specifically:

  • the ability and actual practice of offering and accepting work;
  • whether continuing work is reasonably likely given the nature of the business;
  • whether part time or full time employees are undertaking similar roles;
  • whether the employee has a regular pattern of work.

This change could have significant impacts for employers who engage casuals on a regular basis, and will create uncertainty and risk for employers, potentially resulting in fewer casuals being employed.

Additionally, casual employees who have worked for 6 months (or 12 months in a small business) will be able to notify their employers if they think their working relationship has changed and if they believe they no longer meet the definition of a “casual” employee. The employer will then be required to consider the casual employee’s employment status and whether this should be converted to a permanent role.

This “employee choice pathway” would sit alongside the existing casual conversion pathways currently in the National Employment Standards whereby employees are to be assessed for casual conversion once they have completed 12 months of service.

The Casual Employment Information Statement (which employers are required to provide to new casual employees at the commencement of their employment) will be updated, and employers will now be required to provide the Statement again after 12 months of employment to remind casual employees of their rights.

These changes appear to place a significant burden on employers who will be required to constantly assess, review and communicate with casual employees as to their rights to conversion, even where employees may not wish to do so.


Gig Workers

A major change proposed by the Bill is the implementation of minimum standards for ‘employee-like’ workers also known as “gig workers” – specifically, the Bill introduces a definition of an ‘employee-like worker’ into the FW Act.

Gig workers specifically include those employee-like workers who perform ‘digital platform work’ and those engaged in the road transport industry (collectively known as “regulated workers”).

Common gig work industries include:

  • transportation;
  • food delivery services;
  • disability support;
  • aged care.

The effect of the Bill is to capture individuals who perform work under a services contract regardless of the type of the entity they are engaged in.

Under the Bill ‘employee-like workers’ will include individuals who:

  • have low bargaining power in the negotiation of the services contract under which they are performing work;
  • have a low degree of authority over the performance of work;
  • receive remuneration at or below the rate of employees performing comparable work.

The changes will empower the FWC to deal with disputes over an employee-like worker’s unfair deactivation from a digital labour platform or the unfair termination of a road transport contractor’s services contract (by a road transport business). It appears that the intention of this new FWC jurisdiction is to operate similar to the current unfair dismissal jurisdiction, with the FWC being empowered to order the worker be reactivated or otherwise paid financial compensation.

Registered organisations who represent employee-like workers will also have the new ability to make collective agreements with digital labour platforms which would be registered with the FWC and published.


Independent Contractors

Independent Contractors

The Bill seeks to reverse the High Court decisions in CFMMEU v Personnel Contracting Pty Ltd and ZG Operations Australia Pty Ltd v Jamsek (see our related article here) and expand the meaning of ‘employee’ and ‘employer’ which are to be determined by ascertaining the ‘real substance, practical reality and true nature of the relationship‘ between the parties. Further, in making this determination, regard must be had to the ‘totality of the relationship’ between the parties, having regard not only to the terms of the contract governing the relationship but also to other factors relating to the totality of the relationship, including how the contract is performed in practice.

In the previous High Court decisions, the Court held that where parties have entered into a valid and comprehensive written agreement, which the parties have not deferred from through their actions, the Courts are required to determine the working relationship in line with the written terms of the agreement.

In effect, the intention behind these changes is to revert back to a “multi-factorial” test which was previously used prior to the High Court decisions to determine if there was an employer and employee relationship.

The Bill also proposes that independent contractors will have the right to apply to the FWC to resolve disputes regarding unfair terms in a contract to which they are a party, where the contractor earns below a specified contractor high income threshold (to be set by the FW Regulations) and the dispute is regarding a term in the agreement that relates to a ‘workplace relations’ matter. The FWC must consider a number of factors when determining whether a contract term is unfair, such as the bargaining power and any significant imbalance between the parties to the contract and whether the term imposes any condition that is ‘harsh, unjust or unreasonable’ on either party, as well as any other matters the FWC considers relevant. If the FWC finds that a contract term is unfair it can order that the term be changed or set aside all or part of the contract.

While independent contractors can generally access the general protections jurisdiction within FWC, this marks a significant change to the avenues an independent contractor can pursue should they believe a contractual term was unfair, whereas previously such a matter would have been dealt with as a contractual dispute in a relevant court. Additionally, the re-introduction of the multifactorial test will likely act as further a disincentive for organisations to engage independent contractors, which will likely have ramifications for the Australian economy and individuals who prefer to work for themselves.


Protections against discrimination for employees experiencing family and domestic violence

The proposed Bill amends the FW Act to include an individual being subjected to family and domestic violence in the list of protected attributes. This means employers are prohibited from taking adverse action against an employee (or potential employee) because they have been, or are being, subjected to family and domestic violence.

We consider this to be a positive change within the Bill and aligns with other recent changes in respect to paid family and domestic violence leave within the FW Act. See our article here for more information.


Additional Union and Delegate rights

The proposed Bill confers additional rights on Unions and their delegates, including but not limited to:

  • rights to training, whereby employers must provide reasonable access to paid time (in working hours) for training in respect of delegate duties;
  • rights of recognition which require employers to recognise union delegates on workplace matters and flexibility to communicate with members during work time;
  • requiring terms in modern awards for additional union delegate rights;
  • enable an union organisation to obtain an ‘exemption certificate’ from the FWC to waive the minimum 24 hours’ notice requirement for entry if they reasonably suspect a member has been or is being underpaid. It would also protect permit holders who are exercising rights of entry from improper conduct by others and empower the FWC to impose conditions on a permit, as an alternative to revoking or suspending an entry permit in the circumstances.

It is unsurprising that these changes have been proposed by the Labor Government, however this is likely to be disruptive for employers.


Increased penalties

The Bill increases the maximum civil pecuniary penalties that apply to contraventions (including serious contraventions) of wage exploitation-related provisions by five times (and 10 times for non-compliance with a compliance notice).

This means, for civil contraventions, maximum penalties for individuals will be 300 penalty units which is $93,900 (based on the current penalty unit rate) and for serious contraventions, maximum penalties for individuals will increase to 3000 penalty units which is $939,000 (based on the current penalty unit rate).

This is in addition to criminal offences for wage theft as outlined above.

It would also enable the maximum penalty for a contravention to be determined by reference to three times the value of the underpayment (if able to be determined) in certain circumstances.

It would also amend the scheme for ‘serious contraventions’ in the FW Act so that it applies to knowing and reckless contraventions of the relevant provisions, rather than to knowing and systematic contraventions, thereby making it easier to establish a serious contravention.


What now?

The proposed changes contained in the Bill will have significant impacts for almost all employers – however it is important to remember they are yet to be passed as legislation.

It can be expected that amendments will be made in the Senate, but that the bulk of the legislation is likely to pass.

What is guaranteed is that the  FWC will have the jurisdiction to deal with a significant volume of additional matters, and employers may find themselves dealing with more and more FWC applications, which can be costly and disruptive.

The best thing for employers to do is stay abreast of the changes as they are debated in Parliament, be prepared and consider how these reforms, if implemented, may impact on their business costs and current workplace models, and plan accordingly.

In the meantime, HR Legal can assist in answering any questions you have about how these changes may impact your organisation. HR Legal remains poised to provide guidance and expertise throughout this possible transition.


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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