Friday, 9 February 2024

The Loopholes Have Closed – Closing Loopholes Bill No.2 Passed by Parliament

The Fair Work Legislation Amendment (Closing Loopholes No.2) 2023 Bill (Bill) passed Parliament on 8 February 2024 and is expected to receive imminent Royal Assent.

After months of stakeholder debate, this ‘union milestone’ provides clarity about the changes to the Fair Work Act 2009 (Cth) (FW Act).

As anticipated, while some amendments were made by the Senate, the Bill largely reflects a union wish list.

We outline the key changes below.

Right to disconnect

The ‘Right to Disconnect’ was a last-minute addition to the Bill to amend the FW Act to prohibit employers from contacting employees outside of their work hours unless the contact is ‘reasonable’.

The changes will also provide the right for employees to refuse to monitor, read or respond to contact that is work-related outside of their work hours, unless the refusal is ‘unreasonable’. When determining whether a refusal is unreasonable, a range of factors are to be considered, including:

    • The reason for the contact;
    • How the contact is made and the level of disruption the contract causes the employees;
    • Whether the employee is compensated for additional work (including with reference to non-monetary compensation);
    • The nature of the employee’s role and level of responsibility; and
    • The employee’s personal circumstances (including family or caring responsibilities).

The Fair Work Commission (FWC) will have jurisdiction to hear applications for an order for an employer to cease out-of-hours contact.

As this is an untested area, we anticipate some vigorous debate about what constitutes ‘reasonable contact’.

Concerningly, under the Bill as passed, employers may be liable for criminal penalties if they breach an order by the FWC’s right to disconnect orders. The Government actually sought to have the criminal penalties removed in the Senate, however given the proposed change was last minute, this was rejected by the Senate. As a result, the Government has stated they will legislate to remove these criminal penalties and it was never intended for these to be included in the Bill, however this just further highlights the lack of thorough consideration that has gone into pushing the Bill out.

These changes will come into effect 6 months after the Bill receives Royal Assent (which is expected to be imminent).


Intractable bargaining rules

Arguably one of the most backwards aspects of the changes in terms of industrial relations developments in Australian history, are the new intractable bargaining rules. Effectively what these changes mean is where the parties have reached an impasse in negotiations for an enterprise bargaining agreement and the parties have applied to the FWC to make an arbitration determination about the matter, the FWC cannot make a determination which reduces an employee’s entitlements. The test for assessing the effect of the enterprise bargaining agreement will be performed on a ‘clause by clause’ basis. Employers and business groups have argued that the test should instead be a ‘better-off overall test’ (BOOT).

These amendments complicate the bargaining process and will likely decrease cooperation between the negotiating parties. Employers will likely be less inclined to offer concessions, given if the FWC makes determination, they may find themselves left with all the union’s claims and none of the trade-offs previously negotiated. This means that employers will have less ability to modernise their enterprise agreements to reflect current working arrangements, which undermines the foundational principles of enterprise bargaining.

As a result we expect that employers will have difficulties in reaching agreement with unions when participating in enterprise bargaining negotiations. The changes provide a disproportionate safety net for unions and enable them to engage in unreasonable bargaining negotiations without any consequences.


Contractors and a definition of ‘employee’

A statutory definition of employee will be included in the FW Act which will assist in determining whether someone is an employee or contractor. The definition refers to an examination of the ‘real substance, practical reality and true nature of the working relationship’. This will overrule the decisions of the High Court in the Personnel Contracting and Jamsek cases (see our previous article here) where the High Court emphasised the importance of contractual terms when characterising workplace relationships.

Under the new definition, both the terms of the contract, and conduct (irrespective of the contractual terms) will be relevant in determining whether a person is a contractor or employee.

This provision creates a legislated ‘multi-factorial’ test previously used prior to the High Court decisions to determine if there was an employer and employee relationship, which includes looking at how the contract is performed between the parties, rather than the terms of the contract.

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.

The Bill also provides independent contractors the right to apply to the FWC to resolve disputes regarding unfair contract terms, where the contractor earns below a specified contractor high income threshold (to be set by the Fair Work 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 already 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.

Finally, sham contracting defences will be tightened to remove the ability for employers to rely on the fact they did not know the individual should have been an or did not act recklessly. The relevant test will now be one of ‘reasonableness’ which will be determined objectively. That is, the employer must prove that they reasonably believed that the contract was a contract for services (and there was no employment relationship) to have a defence against a sham contracting claim.


Casual employees

As reported in our previous article, the Bill amends 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 will 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.

The FWC will also have the ability to hear disputes regarding casual conversion.

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.


Right of entry

Union delegates will have increased right of entry powers in circumstances where there is suspected underpayment of wages in a workplace.

Currently, unions must provide a notice of entry to a workplace at least 24 hours, but not more than 14 days before the entry.

However where there is a suspected underpayment of wages, the FWC can waive the notice requirement if it is satisfied notice might result in the destruction, concealment or alteration of evidence.


Minimum conditions for Gig Workers and Road Transport Workers

A major change to the FW Act 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.

Common gig work industries include transportation, food delivery services, disability support and aged care.

The changes will empower the FWC to make ‘Employee-Like Minimum Standards Orders’ providing the minimum entitlements for these workers, and 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.

These changes will come into effect from 1 July 2024.

It is expected that these changes will significantly drive-up costs for employers and consumers. This is clearly not a desirable outcome for anyone in the current economic environment.


Where to from here?

We appreciate that being an employer in the current political landscape can be confusing, stressful and difficult to navigate. These reforms further entrench the environment of industrial relations red-tape and will no doubt affect the productivity and costs to businesses.

Employment disputes before the FWC are often costly and disruptive to businesses. With the expanded jurisdiction to hear additional matters, we expect to see an even further increase in the number of claims before the FWC.

The best thing employers can do is to take a proactive approach to the various reforms. We recommend that employers review their workplace operations and employment conditions to ensure compliance with the recent changes. Most of the changes are due to come into effect six months from Royal Assent, so now is the time to get ready.

If you would like any further information regarding how these changes may impact your business or would like assistance in ensuring compliance with the legislative changes. If you would like a more tailored approach, please contact the HR Legal team for advice.


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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