Significant Industrial Relations Change: Part 2 of the Closing Loopholes Bill passes through Parliament

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The Federal Government has kick-started the parliamentary year continuing the most comprehensive employment and industrial relations reforms in a decade.

The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2023 (the Act) passed parliament on 12 February, 2024, after the House of Representatives accepted amendments made in the Senate.  

The Act, comprising the second tranche of the Government’s ‘Loopholes’ agenda, makes significant amendments to the Fair Work Act 2009 (Cth) by:

• introducing a right to disconnect from the workplace outside of paid hours,
• introducing new definitions of ’employment’, ‘casual’ and ’employee-like’,
• providing further protections from sham contracting,
• boosting union officials’ right of entry to investigate suspected underpayments,
• setting minimum standards for employee-like workers in the gig economy and road transport, and
• introducing changes to intractable bargaining workplace determinations.

Some of the changes will commence the day after the Act receives Royal Assent (which, at the time of writing, is yet to occur), while others are set to commence either on 1 July 2024 or six months from the date of Assent.

The changes exceed those that were expected to be part of the updated legislation and return significant control and powers to unions, employees and contractors.

Expected impacts on employers include:

• Increased administration costs and burdens on employers to implement changes.
• Increased ongoing compliance costs and requirements.
• Increased dealings with unions or union delegates.
• Increased workplace disputes and litigation in the Fair Work Commission.

Below is a high-level summary of some of the key changes for businesses and employers to consider. Advice on specific circumstances should be sought as needed and this is a general summary of the changes and not intended as legal advice.

Right to disconnect

Employees will have a protected right to disconnect from the workplace outside regulated hours, meaning that they cannot have adverse action taken against them for refusing to monitor, read or respond to unreasonable contact, or attempted contact, from their employer or a third party.

The factors which determine if the contact is unreasonable are not limited, but include the reason for the conduct, the nature of the employee’s role and responsibility, their compensation, and their personal circumstances. We expect the out-of-hours contact will be considered reasonable if:

• workers are paid to be on-call,
• their job description requires it,
• in the case of an emergency,
• if the contact is required by law, or
• the contact involves advising about changes to conditions of work such as work location or hours.

Employees will be required to make a direct complaint to their employer about the contact in the first instance. If a direct complaint fails to resolve the issue, then the worker can apply to the Fair Work Commission for an order that their employer stop unreasonable out-of-hours contact.

An employer can also apply to the Commission for an order that an employee stop refusing reasonable contact.

Breaching an order could attract penalties.

Employer considerations

• The terms of employment contracts for employees who are on-call or may need to be contacted outside regulated hours.
• Training for managers to understand the circumstances in which it is legal to contact employees outside regulated hours.
• Implementing policies and procedures about out of hours contact.

Casual employment – introducing a new definition and a mechanism for conversion

The Bill introduces a new definition of a ‘casual employee’ and expands the considerations available for determining when an employee meets the definition.

Casual employment will be characterised by ‘an absence of a firm advance commitment to continuing and indefinite work’.

A range of indicia is now permissible for determining whether an employee meets that definition. This includes considering the “real substantive, practical reality and true nature of the employment relationship”. This means that an employee will not be a casual if the practical reality of the working relationship is one where there is, and will be, a regular pattern and availability of work regardless of how the relationship is described in writing or the expectation that might have existed at the outset of the employment.

The Act removes the requirement on an employer to offer casual conversion, but introduces a new mechanism for casual conversion at the employee’s election. An employee has the right to give a notice to the employer requesting the conversion, after a minimum length of service of six months (or twelve months for a small business employer). The employer is required to give a written response, which includes “detailed” reasons if the conversion is not accepted. If the issue cannot be resolved at the workplace level, a party may refer the dispute to the Fair Work Commission.

Employer considerations

• Review casual employment engagements and consider whether these meet the new definition.
• Employers who engaged casuals will need to regularly review how the employment is being performed and whether the engagement has changed.

Don’t get comfortable: employee vs contractor changes again

The test for clarifying workers as employees or contractors has changed again, with the Bill expressly overturning the two recent decisions of the High Court of Australia that emphasised assessing status by reference to the written agreement.

Whether a person is an employer or independent contractor is now to be determined by ascertaining the “real substance, practical reality and true nature” of the relationship.

To ascertain the practical reality, the totality of the relationship is to be considered having regard to both the terms of the written contract and other factors such as how the contract is being performed.

Employer considerations

• Review any independent contracting arrangements and consider whether these remains appropriate for the circumstances.
• Regularly review contracting arrangements to ensure that in practice the arrangement has not become employment.

Sham Arrangements

The Act makes it more difficult for an employer to defend a proceeding for breach of the provisions against ‘sham contracting’.

Employers will only be able to successfully establish a defence if they can show that they reasonably believed the contract was an independent contract arrangement.

This is a more objective and more onerous test for employers than the current defence, which is that the employer did not know and was not reckless as to whether the contract was for employment rather than an independent contract for services.

The Act also amends the penalties that will apply to a breach, and threshold for what constitutes a serious contravention of this provision.

Employer considerations

• Review any independent contracting arrangements and consider whether these remain appropriate for the circumstances.

Right of entry (exemption certificates) waive 24-hour notice period in certain circumstances

The Act enhances the ability of permit holders to enter a workplace to investigate suspected wage underpayments.

Registered organisations will be able to apply to the Fair Work Commission for an exemption certificate which would waive the usual 24-hours’ notice period for entry to workplaces. The Commission will be required to issue the exemption certificate if it is satisfied that a suspected contravention involves the underpayment of wages affecting a member of the registered organisation.

Employer considerations

• Regularly review compliance with Awards and Enterprise Agreements to ensure there is no underpayment.

Minimum standards for the road transport industry and employee-like workers

The Act gives powers to the Fair Work Commission to set minimum standards for the road transport industry and employee-like workers performing digital platform work.

Applications can be made to the Commission by registered businesses, registered organisations representing workers or employers, or the Minister for Employment and Workplace Relations.

The Commission has broad discretion to decide what terms and conditions will be set as minimum standards.

Employer considerations

• Employers in these industries need to prepare themselves for navigating significant change and new regulation.

Enterprise Bargaining

The Act makes some tweaks to the reforms introduced in the 2022 Secure Jobs, Better Pay legislation to enterprise bargaining. These tweaks include:

• Preventing the FWC from making a term in an intractable bargaining workplace determination less favourable to each employee and employee organisation than a term in the existing enterprise agreement.
• Allowing multiple franchisees to bargain together for a single enterprise agreement.

Employer considerations

• Employers will lose a significant point of leverage in bargaining negotiations.

How we help

Thynne + Macartney can assist to ensure your work arrangements, employment agreements and policies comply with these reforms and your business is protected.

If your matter turns litigious, we can act for you in any disputes, mediations or applications in the Fair Work Commission and other Courts.

About Damian

Known for being approachable, practical and measured, Damian believes that the early assessment of claims helps achieve practical and prompt resolutions. He has extensive experience in helping to navigate and manage reputational risk for employers, insurers and their insureds. With nearly 10 years’ experience, Damian has acted as an advisor and litigator on behalf of businesses, individuals and insurers (and their insureds) in the areas of employment, financial lines and professional indemnity.

Damian has experience running matters to hearing as well as in “out of court” alternative dispute resolution, including mediation and has appeared in all levels of the State and Federal Courts, and before the Fair Work Commission and specialised tribunals.